Upgrade lift for rupee round the bend

OUTLOOK/CURRENCY

The Moody's upgrade of India has given a shot in the arm to the rupee as the rating is expected to increase capital inflows into India. Dealers see the rupee hovering in the range of 45.25-40 to a dollar this week.

Central banks around the world are keeping down their respective currencies against the dollar in order to improve their countries' export competitiveness and also to fuel economic growth. This clampdown seems to be intensified of late as the dollar's weakness seems to continue.

In fact, International Monetary Fund's first deputy managing director Anne Krueger, who was recently in Mumbai, said that interest rates in the United states will not go up till there is firm recovery round the corner.

Moreover, rate revision will become imminent once recovery in European countries also becomes apparent. Meantime, the country's foreign exchange reserves have slipped due to repayment of forex debt.

The reserves came down by $698 million to $103 billion as per latest data from the Reserve Bank of India (RBI).

Meanwhile, a meeting of US Federal Reserve officials is due this week and fresh data are expected which might throw further light on the US economy and the Fed's stance on interest rates.

Dealers feel that there will be heavy resistance and it will not be easy for the rupee to breach and rise above 45.25 per dollar mark owing to intervention by the RBI. However, if it breaks above 45.25, it could rush up to 45.20, they averred.

Last week, the rupee reached high of 45.34 due to the Moody's upgrade but fell back to 45. 45/46 following dollar buying by state-owned banks.

Forwards heading northward
Forward premiums are expected to firm up a bit this week.

Dealers said premiums on the six-month and one-year forward dollars could go up to 0.75 per cent and 0.85 per cent, respectively. This will primarily be because the shortage of cash dollars is abating.

And banks which had bought at higher levels are expected to offload their positions and take profit.

This might see a liquidation through reversing of sell- buy swaps. Exporters, on the other hand, anticipating no further rise in spot rupee might book their receivables.

This could put some pressure on the forward dollar, which is likely to come back to a premium as against at a discount.

Since the last few months, month-end demand for cash dollars has been causing the forward dollar premium into discounted territory.

Last week, premiums remained choppy, with the rates gradually moving up. The week before last, paying interest in the forward dollars market continued on account of central bank intervention "" dollars were being sold in cash to be bought in the forward mart.

On the other hand, corporate demand for dollars is also expected to come up this week, which might prevent the forward dollars from going into discount.

Dealers said that interbank activity in the foreign exchange market will be very subdued this week and both demand and supply will be either corporate oriented or interbank winding up of positions.