Slack Demand To Keep Re In 46.99-47.07 Band

The rupee should remain rangebound between 46.99 and 47.07 against the US dollar this week. The local currency is unlikely to breach any more levels as there would hardly be any month-end demand. Forward premiums are expected to remain stable unless a cut in the bank rate is announced.

"The spot rupee faced some pressure last week due to regular month-end demand for the greenback. Such demand should not arise this week. Therefore, the rupee should keep a range within 47 and 47.07," said a dealer with a foreign bank.

The spot rupee closed at an all-time low of 47.04/0450 on Friday. Month-end dollar demand had pushed the rupee lower in the morning. However, by mid-afternoon, nationalised banks moved in to support the local unit. The rupee was ranged between 47.01 and 47.07 during the day. The Reserve Bank of India's (RBI) reference rate for the dollar was 47.04 as against 47.01 on Thursday.

"The month-end demand pushed the rupee lower in the morning, after which it remained rangebound. The public sector banks selling dollars in the market were believed to be protecting the 47 to 47.02 range," said a dealer with a new private sector bank. "The next week should also see the rupee keeping a narrow range, as the month-end demand was exhausted this week," he added.

Forward premiums are expected to remain flat this week unless the much-anticipated cut in bank rate is announced. But, with Reserve Bank officials indicating that there will not be a rate cut any time soon, not much activity is expected on the premiums front. The 6-month (annualised) should range between 4.7 per cent and 5 per cent.

"There was no activity in premiums of Friday as no rate cut come through. With the US Federal Reserve cutting its rate by another 25 basis points, pressure has been mounting on the RBI to follow suit in order to reduce the differential," said a foreign exchange dealer.

On Friday, the 6-month (annualised) premium ended at 4.78 per cent while the one-year (annualised) closed at 4.74 per cent. The one-year (annualised) is expected to remain in the 4.80-5.05 per cent range during the current week.