Re May Dip To 36 On Growing $ Appetite

FOREX MARKET

The rupee is expected to weaken against the dollar, perhaps dipping to the 36 band, in the inter-bank forex market this week.

According to a cross section of banks, the Indian currency is likely to rule in the range of 35.85 to 36. The forward premiums are also expected to shed a few more percentage points, and rule easy for most of the week. The annualised rates is likely to vary between 5.5 to 7 per cent. This would be reflective of the easy liquidity conditions in the domestic money markets.

The market has a strong feeling that the State Bank of India (SBI) will make dollar purchases in the spot market. During the last two days of the preceding week, SBI actively bought the American unit, driving up its price to a high of Rs 35.945 on Friday last.

The dollar demand from the SBI was, most probably, on behalf of the oil companies, a dealer with a private bank said. She added that the SBI is likely to continue its dollar purchases this week too. This, because it has been instructed to spread its purchases over the month so as not to affect the rupee-dollar parity unduly.

Besides the SBI, demand may also come from the Diamond Trading Corporation, and, possibly, even for IDB Bonds repayment. The rise in the supply of greenbacks, however, is not likely to be commensurate. The temporary demand-supply mismatch could, thus, trigger a rupee depreciation.

Dealers feel the Reserve Bank of India (RBI) is not likely to trade actively in the market.

In the forwards section, premiums across-the-board are expected to rule easy, following the sentiment in the domestic market. On Saturday, the RBI cut the cash reserve ratio by 0.5 percentage point.

This has released over Rs 2,000 crore into the system. Hence, calls are likely to rule below six per cent. Given the tendency of the forward premiums to follow these trends, forwards may be in for a decline.