War Worries Slice Re, Lift Premiums
The increased tension along the India-Pakistan border saw the spot rupee dipping to a new low at 48.41/42 today. The currency ended 5 paise lower from the yesterday's closing of 48.36/3650. The volatility of the rupee percolated into the forward premiums mart and rates zoomed by 8-10 basis points across all maturity.
The Indian unit opened at 48.37/38 and slipped past the 48.40 mark because of the dollar buying by the public sector banks, seemingly on RBI behalf, resulting in the rupee covering some ground. It touched the 48.39 mark, but dipped in the afternoon after the Indian army chief terming the border situation as serious.
A dealer with a foreign bank, "Early in the day, it was the public sector banks's buying and in the afternoon the army chief's statement affected the sentiment. Market participants started taking long dollars positions expecting the currency to fall further after the statement was flashed by one of the wire agency."
The weak rupee pushed up forward premiums as well. The six-month annualised premium closed at 6.30 per cent compared with yesterday's closing of 6.19 per cent. The one-year premiums went up by nine basis points to 6.02 per cent.
The treasury head of a private sector bank said, "the volume in the forward market was thin in the morning and the rates were down compared with yesterday's closing. However, after the army chief's statement, the rates jumped by 10-12 basis points."
The border situation will continue to influence the forex market in the coming week. Dealers said that if the situation worsens the currency can touch the 48.50 mark. However, if the situation improves, there is likely to be a gradual recovery. Sentiment is likely to remain nervous in the forward premiums market as well and the rates will rise if the border condition deteriorates.
A forex dealer said, "We will closely watch the border situation during the weekend and will take decision accordingly on Monday morning."