Rupee Expected To Rule Steady

FOREX Market

The rupee is expected to remain steady against the dollar in the inter-bank foreign exchange market this week. Spot rupee is expected to rule in the 38.5-39 range. Trading volumes are expected to remain normal.

In the forward market, dollar premiums are expected to ease considerably, ranging between 13 per cent and 17 per cent.

Dealers said demand for dollars on spot basis was on a decline. Besides, the State Bank of India (SBI) may sell dollars in the market to absorb some amount of inter-bank and corporate demand.

However, some banks are advising importer clients to make forward purchases in the spot market on account of the near-term premiums still being high. This could see some transfer of demand from the forward market to the spot market.

 

Another factor that could put pressure on the spot rupee is the drop in rupee interest rates in the money market which could have a sentimental impact causing the Indian currency to depreciate. However, dealers do not expect this factor to have a strong impact on the market.

In the forward market, the premiums may continue to fall as interest rates in the money market have come down sharply to around 10 per cent.

The RBI is intervening in the forward market through buy-sell swaps with any bank which approaches it.

This helps the banking system to absorb any excess demand for forward dollars from the inter-bank or merchant segment thus keeping the pressure off the premiums.

Some banks are advising their importer clients to cover at least a part of their near-term exposures as the premiums have come down. One bank has advised its importers to cover for February if it can get a rate below 39.20.

However, some other banks feel the near-term premiums are still very high. They are asking importer clients to make spot purchases of near-term foreign currency payables.

Banks, however, are advising exporters to receive the premium for March and April as the rates are still attractive.