Re Seen Steady, Drop In Forwards On Cards

The rupee is seen to rule in the range of 35.63 to 35.73 against the dollar this week. The annualised forward premium could quote between 5.8 and 6.5 per cent.

According to a dealer, the forward premiums are likely to remain on the lower end primarily because of profit-taking by corporates and banks. These gains are likely to accrue when corporates and banks move out of the forward contracts entered into earlier. This is likely to boost the supply of forwards and thus keep the premiums, especially the six-month rates down. The Indian unit had declined to 35.70 last week Treasury officials attribute this to five reasons. One, the flow of inwards was relatively lesser compared with those in the previous week.

Two, the State Bank of India was buying dollars to meet their month-end demand of its corporate clients. Three, the Reserve Bank of India (RBI) has also been buying greenbacks at the rate of Rs 35.66- Rs 35.70, apart from mopping up the GDR issues of a major nationalised bank in its effort to regulate the supply.

Four, the RBIs new guidelines relating to FCNR (B) deposits will have the effect of making dollar loans cheaper. And the last, a major public sector housing finance company, too, has been picking up greenbacks. Also, the liquidity conditions are relatively easy at present, thanks to the greater than expected cut in the cash reserve ratio (CRR). This is also reflected in the falling yields on government securities. A dealer said the one-month premium should rule around 16 paise, the three-month around 60 paise, and the six-month premium at 96 paise. Another dealer with a foreign bank said expectations regarding the domestic inflation rates could emerge as an important cause for concern to the forex market this week.