Overvalued Spot May Drop Some Notches

Spot rupee is likely to weaken during this week and may touch 48.45 mark towards the end is the refrain among forex dealers.

They said though they are expecting a moderate supply of dollars from institutional investors and through export proceeds, public sector banks are likely to buy dollars heavily.

Forward premiums are expected to fall as the US interest rates are likely to move up.

A dealer with a foreign bank said: "The rupee is overvalued by more than one per cent and in a situation when the export growth is not good, the Reserve Bank of India is not likely to keep the currency at an overvalued peg. They will intervene in the market through the public sector banks (PSBs)."

 

Apart from the buying by public sector banks, there will also be concern over the border situation which had turned heated up afresh after India's Agni missile test.

The treasury head of a private sector bank said if the border standoff escalates, the institutional inflows will decline and exporters will also prefer to keep their earnings abroad. "Both of these together is capable of pulling the rupee down," he said.

On Friday, rupee closed at 48.36/37 against the dollar. In forward premiums, the rates are likely to come down.

A dealer with a private sector bank said according to recent data published, the US economy has shown the sign of improvement which means that the interest rates are likely to go up there.

"On the other hand as the interest rates are likely to remain stable, the forward premiums, which is the interest rate differential in Indian and US market is likely to fall," he said.

Dealers are presaging the six-month annualised premium to be in the range of 5.85 per cent to 5.95 per cent.

They said the one-year premium should hover in the range of 5.75 per cent to 5.85 per cent.