Mint Road to keep rupee ranged

OUTLOOK/CURRENCY

The mini Budget has further strengthened the positive view on the spot rupee which is expected to gain against the dollar.

This will happen on the back of global dollar weakness and continued forex inflows into India. A note of caution is always on the fore in the form of intervention from the Reserve Bank of India.

Even though the dollar has been losing globally and the US Federal Reserve is keen on holding the dollar weak to support recovery, central banker along with its other global peers such as ECB is trying to bring to push it up to support exports.

Dealers expect the rupee to rule in the range of 45.50-60 paise during the week.

While the upside the clamped by dollar buying by RBI, the down side will be checked by copious forex inflows which are making way into India to participate in the buoyant equity market.

Dealers said that except for reserve management techniques to be applied by the central bank, there are no other reasons for the rupee to depreciate.

Even after utilising part of the reserves for external debt pre payment of high cost nature, the central bank's forex coffer is burgeoning. As on January 2, 2004, forex reserves have gone up by over a billion over a week.

Last week, the spot rupee breached the psychological barrier of 45.50 and closed the week at 45.44/43 as the RBI stopped its intervention towards the later part of the week.

With global depreciation of dollar, another factor that has been pushing the rupee up was unabated forex inflows into the equity market. The capital markets have outperformed all other years by clocking an index above 6000 points.

With global economic recovery showing signs of uptick, the robust inflows might become moderate by the middle of the year, a dealer said.

Near-term forwards seen at a discount

Ironically, when the entire financial market is seeing burgeoning reserves, there is a dollar shortage in the cash market.

Since redemption of the Resurgent India Bonds, market players have been failing to deliver the cash dollars swapped earlier. Month after month, the deals are getting rolled over.

Near-term forwards are expected to remain in discount for few weeks till the apprehension of cash dollar shortage subsides.

With a fresh bout of dollar weakness and demand from importers to cover unhedged positions waning, exporter sales and demand for cash dollars is pushing down premiums.

Last week, forward also remained quite choppy. Continuous cash dollar demand pushed the premium till six months to discount and most part of the week saw the six-month forward at par to discount.

However, towards the end of the week, demand for dollars by certain corporate led to dollar buying by foreign banks which pushed up the forward slightly into premium.

This week also saw roll-over of previous month contracts which failed to get delivered owing to cash dollar shortage. Simultaneously, RBI engaged bankers in sell-buy swaps which added to the discount.

Earlier RBI used to prevent the discount by intervening in the market through buy-sell swaps. However, of late the intervention is limited to the spot market.