FOREX MARKET
The rupee is expected to rule in the range of 35.85 to 35.95, generally hovering in the region of 35.88-90, in the inter-bank forex market this week. The forward premiums are expected to ease in the earlier part of the week as the Reserve Bank of India (RBI) is to buy for spot February 14 and sell for spot September.
The six-month annualised premium is expected to slip to 6.5 per cent in the earlier part of the week and then later recover to 7.5 per cent.
The spot market is likely to see some activity as the Reserve Bank of India is expected to hit banks for dollars for the second tranche of redemption of the India Development Bonds on February 15. This redemption is likely to amount to approximately $900 million.
The apex bank has been active in the market for the last couple of weeks. On Friday, they even hit the forward market buying spot dollars and selling forwards. Dealers felt that the apex bank followed this strategy to shore up their foreign reserves without having much of an impact on the exchange rate.
Most market players feel that the RBI will continue its buy-sell swaps till spot-date February 14, that is till February 12. However, it is not likely to purchase more than $200 to $300 million in this fashion.
Hence, it might even hit the spot market. In this case, the spot rate should even touch 35.95.
However, some other banks are of the view that the apex bank has already made all the purchases it requires and will not be active in the market this week.
The forward segment is likely to be active, particularly in the first two days of this week. If the RBI enters the forward market, premiums should ease to 6.5 per cent. This is likely to attract importers who will start paying and cause an upward pressure on the forward premiums. Thus, towards the end of the week, the premiums should once again rule in the range of 7.5 to 7.75 per cent.
