Re Seen Steady, Forwards Set To Drop

The spot rupee is expected to hold steady against the dollar as fears of a full-scale US-Afghan war have receded, crude oil prices have softened and exporters got a boost from the Reserve Bank of India's recent announcement.

The spot rupee should trade in the 47.80-47.90 range to a dollar during the week with the one-year forward dollar premiums seen coming off to the 5.5 per cent level from the last week's 6 per cent level.

"Though uncertainty with regard to the Afghan situation persists, the downside should be limited to Rs 47.80 to a dollar. The central bank should be comfortable seeing the rupee at current levels," a forex dealer with a private sector bank said.

 

The market is expecting a cut in the benchmark bank rate and cash reserve ratio CRR and should this happen the call rates will come down. The softening of call rates will see the forward dollar premiums come off.

"If the situation is normal then exporters will prefer to cover receivables while importers can stay out. The supply side is steady with exporters selling dollars at 47.90/92 level," said another dealer.

On October 2, the US Federal Reserve is expected to announce a 50 basis points cut in its benchmark rate and this could result in forward premiums firming up. But once the RBI cuts the bank rate as well as the CRR, the interest rate differentials between the two countries should be brought down and the forward premiums could fall.

The rupee traded within the range of 47.85/93 during the course of last week. It was supported by good exporter sales and unwinding of long positions by banks.