RBI intervention to curb rupee rise

OUTLOOK/FOREX MARKET

The outlook on the spot rupee is strong but cautious. The Reserve Bank may step in to curb any appreciation in the rupee against the US dollar.

Even though the dollar has been losing globally and the Federal Reserve is keen on keeping it weak to support a recovery in the US economy, the RBI along with its global peers is trying to push the dollar up to support boost their exports.

Dealers expect the rupee to rule in the range of 45.50-60 paise during the week. While the upside is clamped by dollar-buying by the RBI, the downside will be checked by forex inflows which are making their way into India in view of the buoyant equity market.

Dealers said that, except for technical factors of monetary management, there are no other reasons for the rupee to depreciate. The technical factors are the RBI's maneuvering of rates to make exports competitive and prepay high-cost foreign currency loans.

Last year, the rupee-dollar exchange rate saw the highest appreciation of almost five per cent. It opened the year at 47.99 and closed at 45.56 to a dollar. This is in contrast with the 1.07 per cent appreciation recorded in the previous year.

The appreciation in the rupee last year was backed by robust foreign exchange inflows "" in all forms, from non resident Indian deposits, foreign institutional investor inflows to foreign direct investments.

The inflows made their way into India due to the high interest rate differential in the Indian money and debt market with the rest of the world where interest rates have been lower.

During the later part of the year, these inflows found their way into the Indian equity market.

This can be best exemplified by the fact that FII inflows in the Indian equity market for the calender year have been Rs 30,044 crore as compared to Rs 3,576 crore last year.

Forward premiums

Near-term forwards are expected to remain at a discount for a few weeks till the apprehension of a cash dollar shortage subsides. With a fresh bout of dollar weakness, while demand from importers to cover unhedged positions has waned, exporter sales and demand for cash dollars is pushing down premiums to a discount.

Last week, the forwards market remained quite choppy. Continuous cash dollar demand pushed premiums till six months to a discount.

However, towards the end of the week, demand for dollars by certain corporates led to dollar buying by foreign banks, pushing up forward premiums.

This week also saw roll over of previous month's contracts, which failed to get delivered due to cash dollar shortage.