High Call Inflates Forwards, Rupee In Tight Groove

Rupee remained in the close range of 47.01-47.04 against dollar today. Forward premiums, however, rallied sharply on the back of higher call rate and crossed the five per cent mark.

Rupee opened weak at 47.02 against dollar, but fell to touch the intra-day low of 47.04 soon.

A dealer with a private sector bank said, "The sentiment in the market was weak because of two reasons -- firstly negative outlook given from two international rating agency Fitch and Moody's and secondly, the concern over increase in oil prices as Iraq decided to cut supplies."

Dealers said that there was concern as Indian Oil Corporation had issued a third tender to buy more spot crude to fulfill July requirement.

 

Rupee, however, recovered from the intra-day low to close at 47.01 against the greenback as the foreign banks came to support the local currency.

Forward premiums rallied sharply as call rates hovered over the seven per cent level. The benchmark six-month premium ended at an annualised 5.10 per cent compared with Friday's close of 4.95 per cent.

The rupee is likely to remain in the 47.01-47.10 range against the dollar tomorrow. Dealers expect an imminent fall in rupee.

The chief dealer of a private sector bank said, "Many of the research reports indicate that the Indian currency is overvalued by more than 2.5 per cent against the dollar, and thus a dip is quite logical. Moreover, the demand from the oil companies and the lower foreign institutional inflows will also exert further pressure on the rupee." Dealers are expecting the rupee to breach the lowest ever 47.10 mark this week.

Forward premiums are likely to go up further as the call rates may rise. A dealer with a private sector bank said, "As the liquidity is under strain, call rates are expected to harden a bit, which will push up the forward premiums as well."

Dealers are expecting the six-month premium to remain in the 5.10-5.15 per cent range on Wednesday.