Rupee Static, Forward Premiums Take A Knock

The spot rupee remained extremely stable -- ranged between 48.34 and 48.3550 -- against the US dollar today. Forward premiums dipped sharply across maturities as government paper yields fell substantially.

The rupee opened at 48.3500/3550. The Indian currency strengthened a bit to touch the day's high of 48.3400. But, it later slipped to close at the opening level of 48.3500/3550. Dealers said there was significant supply of the greenback on account of remittances from abroad, but dollar buying by private sector banks kept the rupee ranged.

In the forward premiums market, the six-month annualised premium closed at 5.71 per cent against Friday's closing of 5.83 per cent. The one-year premium dipped to 5.50 per cent from Friday's closing of 5.65 per cent.

 

A dealer with a foreign bank said: "There were two reasons why the premiums dipped so sharply today. First, the yields of government papers touched their lows today. On the other hand, US interest rates are rising as the economic outlook has turned positive." Forward premiums depend upon the interest rate differential between the US and India markets.

The rupee is likely to hover in the range of 48.34 to 48.40 against dollar tomorrow. Said a forex dealer with a new private sector bank: "No major demand for or supply of dollars is expected tomorrow. However, we feel the Reserve Bank of India (RBI) will continue to mop up dollars from the market as the Indian currency is still overvalued against the dollar. This can push the rupee down a bit against the greenback tomorrow."

Forward premiums are expected to remain range-bound with a downward bias as government paper yields are likely to go down further. Forex dealers said the six-month annualised premium is expected to hover in the range of 5.65 per cent to 5.75 cent. The one-year premium is likely to move in a band of 5.45 per cent to 5.55 per cent.