Rupee, Forwards Expected To Harden

FOREX Market

The spot rupee is expected to remain strong against the dollar ranging between 35.83 and 35.88 in the inter-bank forex market this week.

Forward premiums are expected to firm up slightly as importers come in to book forward, with the six-month annualised premium ranging between 6.5 and 7 per cent. On account of the various holidays this week, the next spot-date falls on April 21. Hence, the cash-spot segment is likely to see good action as buyers come in to meet payment requirements or to arbitrage. While this would have some impact on cash-spot, the effect is likely to be offset to an extent by the low call rates. Easy calls will also offer opportunities for arbitrage between near-term money and forex markets.

The spot market is expected to see a steady inflow of dollars, largely from exporters. Since the Reserve Bank of India (RBI) has reduced its intervention in the market, exporters are showing signs of panic. More and more exporters are willing to sell their dollars at levels lower than 35.85. This indicates that rupee may remain strong for some time.

Nevertheless, the rupee will not appreciate unduly as expectations of central bank intervention remain.

The psychological level of apex bank intervention is now at 35.83. The market continues to expect the RBI to intervene if the rupee moves above 35.83 levels. This itself prevents the rupee from climbing too much,a dealer said. The premiums are likely to harden slightly. While there will be receiving pressure, the prevailing political uncertainty may see importers also into the market booking the forward dollar.

Dealers do not see any major changes after the announcement of the credit policy. Given the easy liquidity conditions prevailing, the same pattern of trading is likely to continue.

However, dealers do expect the RBI to work out a liquidity management strategy for the domestic and forex markets by introducing policy measures which will generate demand or supply for dollars thereby minimising the need for intervention.