Rupee Gains As Political Fears Ebb, Forwards Rally

The rupee strengthened today to close at 47.80/81 compared to Friday's close of 47.83/8350 amid slight volatility in the morning. Forward premiums rose in tandem with money market rates.

The rupee opened at 47.82/83, but weakened to 47.8350/84 owing to the political uncertainty following the terrorist attack on Parliament. However, the situation improved on the back of steady dollar remittances. The currency touched the day's high of 47.78/79 against the greenback.

At this point, state-run banks started buying dollars and the currency closed at 47.80/81. Dealers felt the banks were buying on behalf of the Reserve Bank of India.

A dealer with a foreign bank said: "There was slight political uncertainty before home minister L K Advani's statement in Parliament. However, after the speech, the market was relieved as no strong measures were announced, which caused the rupee to appreciate."

The uncertainty, however, pushed up forward premiums. The six-month premium closed at 6.45 per cent against Friday's close of 6.25 per cent. One-year forward premium went up to 6.45 per cent from Friday's closing of 6.10 per cent.

A dealer with a private bank said: "The premiums moved in accordance with the volatility in the government securities market. Though the premiums recovered in the later part of the day, it was substantially down compared to Friday's level."

The rupee is likely to hover around 47.80 tomorrow. Forex dealers, though, expect dollar inflows to continue, are concerned over the political scenario. A treasury head of a foreign bank said: "Much depends on how the government handles the situation. If war is declared there will be drastic a fall in rupee. Otherwise, we expect the unit to remain stable around the current level." Forward premiums will remain stable with an upward bias.