Spot Re Edges Up, Premiums Dart Up

FOREX REPORT

The forward market had a roller-coaster ride yesterday as premiums tightened and then crashed as the RBI eased liquidity in the market. The net effect was that forwards closed at the same levels as on Tuesday.

The spot rupee was range-bound and, in fact, gained a paisa. It closed the day at 43.60 as compared to a close of 43.61 on Tuesday.

Premiums moved up sharply in the morning as call money rates shot up to levels of 25 per cent due to tight liquidity conditions.

January dollars opened at a swap difference of 123 paise, while December opened at

 

113 paise.

"The volatility was so strong that, at one point in time, there were no quotes for January dollars," said a dealer.

As call money rates rise, the traditional borrowers in the call money market like foreign and private banks conduct sell-buy swaps - selling dollars in spot and simultaneously buying in forward to stay liquid as an alternative to borrowing funds at the high interest rates.

However, subsequently the premiums crashed as the announcement filtered through to the markets that the Reserve Bank of India (RBI) would buy back treasury bills from primary dealers. January swaps fell to 118, while December fell to 108.

Premiums are likely to be range-bound for the day today, if the liquidity conditions ease off. They will tighten, however, if call money rates stay high. Call money closed at 15 per cent yesterday.

The spot rupee opened at 43.62 and was in a range of 43.59 to 43.62 for the day.

The same range for the rupee is expected tomorrow also.

In the international markets, the dollar remains strong against the yen. It was traded against the dollar at 109.10 at the time of the close of the Indian market.

The euro was traded against the dollar at 0.9810 and the pound was traded at 1.5960.

The closing levels of annualised premiums were 1 month - 4.01 per cent (3.96 per cent on Tuesday); 3 months - 3.31 per cent (3.37 per cent); 6 months - 2.93 per cent (3.04 per cent); 9 months - 2.86 per cent (2.92 per cent); 12 months - 2.84 per cent (2.90 per cent). Cash tom and Tom-spot closed at 1.50-1.75 and 1.25-1.75, while cash spot closed at 3-3.5.

Premiums in paise closed at February - 7.5-8.5 (7.5-8.25 on Tuesday); March - 18-19.5 (19-20); April - 28-30 (29-31); May - 38-40 (39-41); June - 48-49 (49-51); July - 57.5-59 (59-61); August - 66.5-68 (69-71); September - 76.5-78 (78-79); October - 86-88 (88-89.5); November - 96-98 (99-101); December - 106-108 (108-109.5); January - 116-118 (119-121).

The rupee closed against the euro at Rs 42.78, against the pound at Rs 69.60, and against 100 Japanese yen at 39.97.