Rupee Set To Firm Up On Strong Forex Inflows

The rupee is likely to strengthen against the US dollar on the back of good foreign exchange inflows. Further, with the rate cut by the European Central Bank and the dollar depreciating against all major currencies, the rupee is poised to gain. It is expected to hover in a Rs 46.80-46.93 range.

The only factor that will prevent the rupee from moving higher will be the intervention by the Reserve Bank to keep the rupee competitive compared to neighbouring currencies. Some market participants feel the rupee might go up to Rs 46.70 this week.

However, if the forex inflows continue to be strong, there is not much concern on the rupee front. There has been an accretion in forex inflows of $513 million (Rs 3,111 crore) in the week ended May 30, 2003.

 

Most of the forex inflows from foreign institutional investors and non resident Indian deposits are due to good interest rate differentials in the rupee compared to other currencies.

In fact, there has been good growth in rupee-denominated foreign deposits in the form of NRE deposits as interest rates are especially high for these categories.

Last week, the rupee opened at Rs 47.15-20 owing to heavy dollar demand from importers and banks to cover open positions.

Exporters, on the other hand, cancelled forward contracts to realise a better value later. However, with receding demand for dollars, the rupee firmed up to Rs 46.85-88 later.

Forward premiums to rule high

Forward premiums on the dollar are expected to rule high due to demand at around last week