Spot Rupee Seen In 42.25-35 Band

FOREX MARKET

The foreign exchange market will see quiet trade with the rupee showing a strengthening bias, foreign exchange dealers said.

With the market closed on Monday, Wednesday and Thursday for Diwali, dealers expect little merchant or inter-bank interest.

Spot rupee is expected to range between 42.25 and 42.35 with the State Bank of India (SBI) mopping up excess dollars, thereby providing a ceiling to the exchange rate around 42.25.

Forward dollar premiums would also rule fairly easy. The indicative six-month dollar premiums were expected to range between 7.5 to 8.5 per cent, dealers said.

The rupee closed on Friday at 42.30-32, and the six-month dollar premium ended at 7.86 per cent.

 

Dollar supplies are expected to be fairly good. Bankers said inward remittances would bunch up in banks' overseas nostro accounts because of the holidays, resulting in good inflows, particularly on Tuesday and Thursday. However, demand would be limited as corporates would hold purchases till after the festival week.

Dealers said SBI absorb excess dollars, preventing the rupee's appreciation much beyond 42.25. Some banks felt the SBI would allow the rupee to appreciate up to 42.20 and passively mop dollars at those levels for oil clients or for the central bank.

Apart from improved supply conditions vis-a-vis demand, dealers said the international currency market developments would also work in favour of the rupee.

The US Federal Reserve last week cut its rate to five per cent from 5.25 per cent and the discount rate to 4.75 per cent from five per cent.