Re May Dip, Forwards Expected To Quote High

FOREX MARKET

The rupee is expected to weaken marginally against the dollar this week.

According to a cross section of banks, the Indian currency could rule in the range of 35.84 to 35.95. Coupled with this, the forward rupee is seen lower as paying pressure mounts. The six-month annualised premium may fluctuate between 7.5 and 8.5 per cent.

The first tranche of India Development Bond (IDB) issue is due for repayment on January 15. No indications are available about the extent of repatriation. It is also not clear whether the money will be raised from the spot market or from the RBI's forex reserves. All the same, the repatriation sentiment might exert some pressure on the rupee-dollar parity.

Besides, the State Bank of India (SBI) could pick up dollars for oil majors. The Diamond Trading Corporation, too, may follow suit as they have to make payments. Their purchases of dollars has, so far, been only moderate.

During the better part of last week, SBI, by far the predominant trading entity, played a limited role. Hence, the rupee recovered the ground lost in the previous week. SBI had aggressively bought dollars, sending the greenback soaring to Rs 35.945 on January 3. The rupee ended the week at 35.85/86.

Although the spot market lacked volatility last week, trading volumes were up. Dealers feel that greenbacks had come in by way of increased inflows from foreign institutional investors, as well as banks' FCNR(B) funds conversions, apart from the usual sources. At the same time, demand also increased, though not by matching volumes, so as to make the rupee appreciate.

In the forwards section, premiums across-the-board are likely to rule high. Banks are expected to continue swapping their FCNR(B) funds into rupees for liquidity purposes. This could exert an upward pressure on the premiums. Moreover, profit taking by banks and corporates could also continue.