Rbi Purchases May Keep Rupee Down

FOREX Market

The spot rupee is expected to move in the range of 35.77 and 35.85 against the dollar in the inter-bank forex market this week. The rupee's tendency to appreciate is likely to be curbed by the spot dollar purchases made by the Reserve Bank of India (RBI) and other commercial banks who may enter the market to make purchases for the oil majors.

In the forward segment of market, the annualised premium on the six-month dollar is likely to remain soft ranging between 4.3 per cent and 4.7 per cent as forward dollar sales continue to exceed forward dollar purchases.

In the spot market, the main source of dollar demand is likely to be the Reserve Bank of India (RBI) whose purchases will see the dollar climb above 35.80 levels. If the commercial banks enter the market to make purchases on behalf of the oil majors, the rupee is likely to be seen even weaker with the dollar being bought at over 35.83 levels.

Spot dollar supplies have been good in the market as inflows have been coming in from foreign institutional investors (FIIs) who have been showing increasing interest in the Indian capital market, as well as from corporate who have been increasingly opting for foreign currency loans. This supply is not being met with by demand as imports have been slack leading to low dollar demand from importers. This has lent stability to the rupee-dollar parity.

In the forward segment, there has been strong receiving interest on account of the low premiums. Exporters, not expecting premiums to rise are selling their forward remittances at the best rates available. However, demand for the forward dollar has remained very nominal as exporters are confident of a strong rupee. This is keeping the premiums on the dollar from strengthening.

High trading volumes in the forward market, swap activity will also be high, as banks seek to cover open positions entered into following a forward transaction. This is likely to see the swap volumes remain high.