FOREX Market
The rupee is expected to move in the range of 35.88 to 35.95 against the dollar in the inter-bank forex market this week. Forward premiums are expected to strengthen with the six-month annualised being pegged above 7.0 per cent.
Dealers expect some amount of activity in the spot market from corporates as well as institutions. The State Bank of India (SBI) and the Reserve Bank of India (RBI) may enter the market to support the dollar, particularly if it slips below 35.89. It is widely felt that the RBI may come in to purchase the greenback to shore up its reserves after the redemption of India Development Bonds on February 15.
Last week, the RBI was in the market, though not aggressively, picking up dollars at Rs 35.88 to Rs 35.90 as banks came forward to sell to it. The SBI too entered the market to support the American unit at rates offered to it by banks. It is likely that if excess supplies persist this week, these two institutions will carry on their mop-up operations again.
Another source of demand for the dollar could be corporates who come in to make purchases for their month-end requirements. These factors could well see the dollar priced at Rs 35.95.
The forward premiums are also expected to come under upward pressure as corporates start to roll over their contracts which mature at the end of the month. Also, bankers expect corporates to come in to book for the near end, that is March, to hedge against any volatility that might arise after the Budget is announced. There might also be some inter-bank profit-taking further strengthening the upward pressure on premiums.
Last week, the forward market was seen recovering from the RBI's swap activities prior to and immediately following the redemption of India Development Bonds. The apex bank bought the dollar for spot February and sold it for spot August and spot September.
