Weak $ Seen Strengthening Rupee, Forwards May Dip

The spot rupee is likely to be in the 47.10-47.15 range, while forward premiums are expected to decline by another four to five basis points this week on the back of easy liquidity. On Friday, the local currency remained rangebound between 47.1225 and 47.1250, amidst thin trading volumes.

"The rupee has been stable for the past one month, moving in a 2-5 paise band. I do not see any domestic or international reason for a change in the environment this week as well," a dealer with a new private sector bank said.

He said the Reserve Bank of India (RBI) had enough reserves in case of any international pressure on the local unit.

 

"The spot rupee should actually remain strong given the weakening of the dollar against other major currencies. However, for the last one week public sector banks have been buying dollars to support the domestic currency," another dealer with a private sector bank said.

Dealers feel public sector banks might have been acting on behalf of the RBI as strengthening of the rupee could hurt exports of the country which is growing at a lower rate in the current fiscal.

Forward premiums are likely to come down this week. "Premiums generally track the money market. As the money market is flushed with liquidity and call rates are likely to stay below the seven per cent level, premiums may slip," the treasury head of a private sector bank said.

Dealers expect the six-month premium to be in the 4.55-4.65 per cent range this week, while the one-year premium may stay in the 4.70-4.75 per cent band. "There may not be any drastic fall in forward rates, but a gradual dip could be witnessed," a dealer said. The six-month and one-year premium closed at 4.75 per cent and 4.78 per cent, respectively, on Friday.