Spot Re Weak, Dipping Us Rates Spur Forwards

Continuous dollar buying by the public sector banks kept the rupee in the 47.96 -- 47.9750 range today. Forward premiums rose as interest rates in the United States dipped again after remaining firm for last couple of days.

The Indian unit opened at 47.9600/9650. Though there were some remittances today, buying by the public sector banks outstripped them and weakened the rupee to close in the range of 47.9700/9750.

Said a dealer with a private sector bank : "The value of the rupee nowadays is solely determined by the public sector banks' dollar buying in the market. The rupee should have strengthened a bit but for the huge mop-up by these banks." Dealers said the state-run banks were buying on behalf of the Reserve Bank of India (RBI).

Forward premiums started moving up again today after downward movement over the past couple of days. The six-month premium closed at 6.42 per cent compared with Monday's closing of 6.32 per cent, while the one-year premium ended the day at 6.25 per cent as against Monday's closing of 6.22 per cent.

The forex head of a private sector bank said: "Premiums have been going down for the past two days as the US interest rates went up a bit. But today, many people in the US derivatives market, however, expressed doubt that the upward turn in interest rate is only temporary. This caused the premiums to rise once again." The six-month Libor, as a matter of fact, fell by five basis points to 2.14 per cent today.

The rupee is likely to remain in the 47.95 - 48 range on Wednesday amid buying by public sector banks and good remittances from abroad.

A dealer with a foreign bank said: "There will be good supply of dollars even tomorrow, but it is likely to be absorbed by the state-run banks once again." Premiums are likely to move up again despite a very liquid domestic money market as US interest rates may drop further.