Importers rush for cover, spurred by low forwards

In order to take advantage of the low forward dollar rates, importers rushed to cover their future payments after a long spell on Friday.

Bond dealers, on the other hand, went on a buying spree after the expenditure secretary's announcement that the government might cancel the scheduled bond auction in May. The bond market was jubilant over the statement of expenditure secretary D Swarup that the auction in May might get cancelled if the government had enough surplus cash.

"If the surplus is there, yes we will," Swarup told reporters yesterday. Asked how big a surplus he would be comfortable with, Swarup said Rs 15,000-16,000 crore. Ashok Lahiri, chief economic adviser to the government, said the government is aiming at an inflation rate below five per cent for the current fiscal.

With the spot rate stabilising at around 43.80-43.85 levels, exporters have stopped getting panicky but importers seized the opportunity to cover their future payments with the availability of cheaper dollars in the forwards market compared to the spot.

The spot rupee opened at 43.9702, with supplies gained to close at 43. 87 to a dollar. Buying demand in the bonds market led to gilt prices going up by 25-40 paise in the long end. The 10-year benchmark 7.37 per cent 2014 closed at 5.07 per cent and dealers said it will soon breach 5.05 per cent if the buying spree continues.

Bond dealers took comfort with the existing liquidity situation in the market. The banking system has over Rs 90,000 crore lying with the RBI in repos.

The market started with a bearish undertone as the government announcement an inflation rate of 4.40 per cent.

With importers covering positions and exporters cancelling their earlier contracts, forward dollars recovered a bit from Thursday's levels with one-year forward dollars coming back into premium during the day.

However, towards the later part, forward dollars of all maturities slipped to a discount. The six-month and one-year forward dollars closed at -0.15 per cent and -0.05 per cent as against 0.06 per cent and 0.03 per cent respectively, on Thursday.