Re In A Narrow Slot; Forwards Dip Further

The rupee moved in the range of 35.67 to 35.71 in the inter-bank foreign exchange market yesterday, a notch over Fridays high of 35.70. Yesterdays market saw an equilibrium of sorts with demand matching supply. On the supply front, a lot of domestic and foreign banks were selling greenbacks, while export proceeds added to the inflow. On the demand side, there was comparatively increased buying by the State Bank of India (SBI) and a public sector steel company which picked up cash dollars.

Much of the demand from banks was of the speculative variety. A steady buying interest was seen at the lower levels due to anticipation of a weakening rupee. Some purchases were also made by corporate speculators interested in squaring their positions on forward contracts.

The market also saw buying from inter-bank players who were seeking arbitrage gains from the interest rate differentials between the 5.5 per cent on the dollar and the 2 per cent on call money. The cash-tom was at -.5 level and the cash-spot was -.75/+.25. It had turned negative during the last three days of trading. One reason for the low forward given by a dealer is that while exporters are looking to cover their forward positions, importers are not. The annualised forward premium dropped 18 basis points to touch 5.82 per cent yesterday. It ruled around 6 per cent on Friday.