Rupee Could Touch 39.20 Against $

FOREX Market

The rupee is expected to trade between 38.90 and 39.10 against the dollar. On Friday, the spot rupee had weakened to close at 38.92-94. The possibility of rupee touching 39.20 is also not ruled out.

Forward premiums are expected to move up and six-month premiums are expected to be at 16-18 per cent.

Foreign exchange dealers anticipate that corporates may rush to cover their exposures. There will be a lot of covering because of uncertainty over the election results and banks would also keep an eye on year-end balance sheet considerations.

Forward premiums moved up steadily during the course of last week on account of a host of factors. One-month premiums increased from 9.20 per cent on Monday to 12.54 per cent on Friday, three-month premiums from 13.46 per cent to 16.75 per cent and six-month premiums have gone up from 12.94 per cent 15.95 per cent.

 

Forex dealers explain the market is long on premiums. On Friday, there was some import booking for large amounts in the market. Since banks are already long on premiums, the increase in demand pushed up premiums. In addition, banks do not want to build up any additional position.

Last week, the finance secretary's statement that the Reserve Bank would not sell forward dollars in excess of 10 per cent of the level of foreign exchange reserves generated nervous sentiments. The market believed that the apex bank's ability to intervene in the market through outright transactions in the forward market would be hampered given that it has sold forward dollars in excess of $2 billion. Subsequently, the RBI deputy governor stated the 10 per cent was an indicative figure and not a rigid rule.

There is also some apprehension in the market over policy decisions of the RBI and the fact that possibility of interest rates hardening in March could not be ruled out.