Rupee Likely To Rule In 35.75-35.84 Band

FOREX Market

The spot rupee is expected to remain steady against the dollar, ranging between 35.75 and 35.84, depreciating only when the Reserve Bank of India (RBI) enters the market for dollar purchases.

In the forward segment, premiums are likely to remain soft largely on account of confidence among the importer community who do not expect the rupee to depreciate owing to good forward inflows from exporters. The six-month annualised premium is likely to range between 4.25 and 4.75 per cent. The RBI is likely to enter the spot market buying dollars with the objective of preventing the Indian currency from appreciating unduly. However, given the strong liquidity position in the markets the apex bank is expected to limit its intervention.

 

In order to have the desired impact on the exchange rate, the market feels that the central bank will stagger its purchases over the week. This will limit the inflow of rupees into a market flush with funds, even as it keeps the rupee from appreciating beyond 35.75-levels which would result in panic among exporters.

In the cash-spot segment, some activity can be expected if the inter-bank money market rates continue to rule below 1.0 per cent. This is because banks may start arbitraging by borrowing rupees cheap from the call market, buying dollars and keeping them in the nostro account to earn over 5.5 per cent. In the forward segment, the only factor that keeps the premiums from crashing is the interest payment from corporates which are actively borrowing foreign currency loans.

They are coming into the market to buy a forward contract to help them hedge against the exchange rate risk. Importers are not even covering for the short-term as they are confident that the rupee will not appreciate for some time.