Spot Up A Tad, Forwards Up On Rate Cut Expectations

The spot rupee ended the day marginally higher after a day of good selling by foreign banks. The forward premiums also rose minimally by the end of the trading session, in anticipation of a rate cut.

The spot rupee opened slightly weak at 47.0150 and remained in the range of 46.99 to 47.0250. The spot rupee closed at the day's high of 46.99. "The movement through the day was in one direction where there were good supplies and very little demand, pushing the rupee slightly up before the day's close," said a dealer with a new private sector bank.

"The supply mostly came from foreign banks, who are believed to be selling for the foreign institutional investors (FIIs) along with corporate inflows. With very little demand, the spot rupee recovered by the end of the day," he added. The little demand through the day was from nationalised banks.

 

"There was some month-end demand but not enough to move the market. Today's spot date was the 30th. Therefore, there was some demand from the corporates. Otherwise, the demand was very little," said a foreign exchange dealer.

Tomorrow, the spot rupee is expected to remain in the range of 46.98 to 47.03 with some corporate month-end demand likely. "This narrow range is expected to continue till the end of this week," said a dealer. The Reserve Bank of India (RBI)'s reference rate for the dollar is 47.01 as against 47.04 on Tuesday.

Forward premiums rose by a few basis points on the back of rate cut expectations in the US with the second day of the Federal Open Market Committee (FOMC) meeting. The 6-month (annualised) closed the day at 4.82 per cent as against 4.86 per cent on Tuesday, while the one-year closed the day at 4.84 per cent as against 4.84 per cent.

Today is the second day of the FOMC meeting, in which a rate cut is expected. The rate cut has been factored in, and if the US Fed cuts the rate by 50 basis points, the pressure will continue to mount on the RBI to cut rates in order to reduce interest differential.

Premiums kept a narrow range today and is expected to keep a narrow range even tomorrow. "With rate cut expectations in the US and in India, the premiums will not react once the rate cut happens," added the foreign exchange dealer.