Psb Dollar Demand Clips Spot, Premiums Stable

Aggressive dollar-buying by public sector banks resulted in an all-time low closing of the rupee at 48.27/28 today. It ended at the same level on December 28.

Despite a fall in call money rates, forward premiums were stable. The rupee opened at 48.25/26 and slipped later to 48.30/31 due to dollar buying by the State Bank of India and other public sector banks. The currency recovered in the afternoon due to supplies on account of remittances.

Dealers, however, were divided over the reason why state-run banks were buying dollars. A section of dealers feel that there was genuine corporate demand for the greenback. Another section felt that public sector banks were buying on behalf of the Reserve Bank of India (RBI) as the rupee is still overvalued against the dollar.

 

In forward premiums, the volume of transaction was low. The six-month annualised premium closed at 6.20 per cent against yesterday's closing of 6.21 per cent. The one-year premium ended at 5.95 per cent, same as yesterday's closing.

A dealer with a foreign bank said: "Government paper yields dropped today, while spot rupee was volatile. Also, the US Federal Reserve is likely to cut interest rates at its next meeting. These kept the premiums stable."

The rupee may continue in the 48.20-48.30 range against the dollar tomorrow. The movement of the Indian currency will largely be influenced by the strategy of public sector banks.

In forward premiums, trading is expected to remain thin and the rates may hover around their current levels. Dealers said that the six-month annualised premium is likely to be in the 6.15-6.22 per cent band. The expected range for the one-year premium is 5.90-6 per cent.