Rupee may rule in 43.50/90 per $ range

OUTLOOK/ Currency

The spot rupee is expected to rule in the 43.50-43.90 range against the dollar this week on the back of robust dollar inflows. For the week ended April 2, foreign exchange reserves have increased by $1.06 billion over a week to a total of $112.69 billion.

However, due to the rupee's appreciating against the dollar, the value of reserves in terms of the rupee has been going down on a weekly basis. Last week it had slipped by Rs 6,426 crore to Rs 4,93,085 crore.

Dealers expect corporates to bring back the dollar proceeds raised through external commercial borrowings. Overseas borrowing is expected to go up with the liberal norms announced by the government.

Non-resident Indians will continue to keep deposits in rupee-denominated accounts so as to earn a better value. Even if interest rates are expected to go up overseas, NRIs a likely to continue with Indian deposits in order to avail of tax advantages, said dealers.

Dealers feel that the RBI has taken a cue from the Bank of Japan which is understood to be keeping out of the foreign exchange market and not buying dollars as exports have shown good growth.

Some are of the view that RBI intervention is becoming an expensive proposition which is not only making sterlisation costly but putting pressure on the inflation rate. On both the accounts, the RBI might be a bit conservative in its intervention in the market, feel market players.

With the disinvestment is over for the time being, there is a feeling that there might be a sealing on foreign institutional investors (FIIs) counters in the equity markets and this will result in dollar buying by custodian banks.

In fact, FIIs are likely to repatriate from most of the Asian countries as many of them including India are having elections and the resultant political uncertainty.

This might result in some tightness in the rupee-dollar exchange rate. This is likely to take some time, feel dealers. They also added that in order to support a gross domestic product growth of over 10 per cent, the import demand is expected to grow.

This might widen the trade deficit and thus in turn put a downward pressure on the rupee-dollar exchange rate.

Firm trend foreseen in forwards

There is a unanimous view that forward dollars will not fall back into discount as the RBI, on a daily basis, is furnishing dollars in the market through sell-buy swaps.

While on one hand the RBI has been buying dollars from the spot market, it is supplying dollars in the cash market through sell-buy swaps. This means that it will buy back these dollars from the market at a future date.

This dual exercise has been helping RBI to control an appreciating rupee and maintain a premium in the forward market. Through these swaps, it is inducing a paying pressure in the forward market.

Dealers are of the view that the forward market will see interplay of exporters and RBI. If the RBI protects the rupee in the spot market and does not intervene in the forward mart, exporters will be booking receivables at possible support levels and thus are receiving premiums. This in turn will result in a dip in premiums.

Forward dollar premiums have been witnessing a range-bound pattern. However, the real need to hedge forward positions is yet to surface. Most of the importers are lying with open forward positions as there is a general belief that the rupee is set to appreciate.

Bankers feel that most of the dollars in the market has been booked for long-term tenures and will be brought back only when the contracts expire. These contracts are basically foreign currency loans disbursed to corporates.