Rupee, Forward Premiums Seen Steady

FOREX MARKET

The forex market is not likely to react immediately to the budget this week. The spot rupee is expected to remain stable against the dollar in the face of steadily increasing inflows in the inter-bank forex market. It is expected to range between 35.86 and 35.92. Tracking the spot dollar, the forward dollar is also likely to remain steady with forward premiums remaining between 6.5 and 7.5 per cent.

The sentiment in the market is fairly easy. Expectations of a too-sharp rupee depreciation in the near future are minimal. The demand for the American unit is not likely to be heavy this week as most importers have covered over the budget. Moreover, market players largely feel that dollar supplies, which already outstrip dollar demand, are going to improve as foreign institutional investors express renewed interest in the Indian market.

In the forwards segment, premiums are likely to rule easy. Being the first week of the month, the paying pressure from rollovers of FCNR(B) funds and forward contracts is likely to be absent. Second, exporters, anticipating easy rupee for a while, are likely to be more forthcoming, selling forward dollars at the existing rates.

During the last week, the supply of the greenback in the market exceeded demand. This saw the rupee strengthen. The Reserve Bank of India and the State Bank of India came in to purchase the American currency. However, they did not actively bid for the greenback, but picked up the dollars at prices quoted by banks.

Most of these purchases were in the range of 35.88 to 35.90. In the last few months, banks have largely been net sellers of dollars which is indicative of the good supply position.

Last week also saw the forward market recover from the heavy receiving pressure exerted on it a couple of weeks ago when the RBI came in to purchase spot-February and sell spot-September.