Re Seen Stable, Premia Range-Bound

FOREX Market

The rupee is likely to be stable against the dollar this week, and foreign exchange dealers said they expected normal two-way trade with moderate volumes. Spot rupee is expected to trade between 42.50 and 42.60 with the dollar being supported at least around 42.50 levels by the State Bank of India (SBI), they said. The forward rupee will be ranged, and the six month annualised dollar premium will hover in the seven to eight per cent range, they added. Dealers said the market will look to the SBI for clues as to where the rupee is headed during the week.

Last week, SBI supported the dollar at 42.50 and its purchases _ coming after a gap of almost two months _ towards the end of the week saw the rupee slip beyond the 42.55 mark. "While the SBI's purchases could have been for its corporate clients, the market interpreted its presence as a signal that the authorities wanted a ceiling for the rupee at the 42.50 mark," one private bank dealer said. Dealers said some factors, including the easing of month-end demand, possible merchant inflows and expectations of a successful float of the SBI's Resurgent India Bonds (RIB) scheme, could buoy the rupee.

However, they added that the SBI may contain any potential appreciation through intervention. The forward market is also expected to see two-way trade keeping the dollar premiums ranged as month end demand eases, dealers said. "With receiving (forward selling in the swap market) by the SBI and the Reserve Bank of India (RBI) easing, and no significant market moving factors expected, the premiums are likely to remain unchanged," one private bank dealer said. Dealers said most corporates were hedged and this would generate little demand for the forward dollar. With dollar premiums unlikely to ease, they said exporters would be well advised to sell their dollars forward. They said they were also advising corporates with paying liabilities to cover their near term exposures as the premiums were at attractive levels.