Re Pegged At 35.70, Forwards Steady

Rates in the inter-bank forex markets are expected to remain steady this week. While dollar inflows in both the spot and forward markets continue to trickle in, demand is likely to remain stagnant.

The spot rupee is expected to range between of 35.69 and 35.72. Forward dollar premiums, which strengthened during the latter half of the last week are also seen fairly steady this week. The six-month annualised premium is likely to move in the range of 3.4 per cent to 3.9 per cent.

The spot rupee will show a tendency to cross the 35.69 mark on account of good dollar inflows. However, the market strongly expects the RBI to maintain its presence keeping the spot rupee at around 35.70 levels. "The auctions of government paper and repos in the money markets may see some outflows. This will provide some leverage for the RBI to purchase some of the excess dollars floating in the forex market," said a dealer.

Being the month-end, some banks feel that corporates will come in to make purchases to meet their payment obligations. If a larger nationalised bank enters the market, the rupee could face some downward pressure slipping to 35.72 or 35.73.

However, the market generally feels that this demand will not be more than nominal. This is on account of the fact that the State Bank of India (SBI) does not purchase dollars from the market for oil majors.

The corporate demand that may be there in the market will easily be absorbed by the dollar inflows.

In the forwards segment, the premiums which had shown a tendency to strengthen last week might start weakening. Market sources feel that following the statement made by the RBI governor, C Rangarajan, indicating a move towards lower interest rates in the banking system, forward premiums might also move downwards. Hence the six-month premiums might hover around the 3.5 per cent.

The governor's statement prompt exporters who are already selling their forward remittances to further unload in the market. Hence, the market should see increased receiving interest this week.