Re Slips On Uncovered Bank $ Needs, Forwards Up

The Spot rupee weakened today to close at 48.78/79 against Friday's closing of 48.7450/76. Forward premium rose sharply as government paper yields rose sharply.

Rupee opened at 48.77/80 level. The currency dipped sharply in the first half of the day to touch an all-time intra-day low of 48.88/89.

Forex dealers said that banks have not covered their dollar requirements properly last week and it gave rise to the excess pressure on the currency. However in the afternoon, public sector banks helped the rupee to recover by supplying dollars.

A dealer with a new private sector bank said: "There was not much of corporate demand in the morning. But it was the undercoverage of products that caused the rupee to fall."

 

A section of the dealers felt that the result of the Uttar Pradesh Assembly poll indicates that the reform process can be slowed down which also affected the rupee's strength.

In the forward premium market, as the forex market turned volatile and the government paper yields jumped sharply, premiums rose as well.

The six-month annualised premium closed at 5.65 per cent against 5.49 per cent on Friday. The one-year premium closed at 5.30 per cent against its previous close of 5.17 per cent.

The spot rupee is likely to remain in the 48.70-48.90 range tomorrow. Dealers said that much will depend upon state-run banks' move in the market.

The treasury head at a private sector bank said: "The rupee is still overvalued against the greenback. Hence, state-run banks can mop up dollars from the market tomorrow which will result in further weakening of the currency."

Premiums are likely to go up further as government paper yields are likely to move up. A dealer with a foreign bank said: "After UP election result, the finance minister may not think it politically justified to cut the small savings rate and so interest rate across all the market are expected to go up."