Rupee seen in 45.20-45.30/$ band

OUTLOOK/CURRENCY

The outlook for the rupee is strong but cautious. Even though the greenback has been losing globally, the RBI is trying to keep the rupee week against the dollar to aid exports.

Dealers expect the rupee to rule in a Rs 45.20-30 band against the dollar during this week. While the upside is clamped by dollar buying by the RBI, the down side will be checked by copious forex inflows which are making their way into India to participate in the buoyant equity market.

Dealers feel foreign funds will play a significant role in the government's disinvestment program. Dealers said that, except for technical factors of monetary management, there is no reason for the rupee to depreciate.

Last year, the rupee dollar exchange rate saw the highest appreciation of almost five per cent. It stood at 47.99 in January 2003 and closed the year at 45.56.

The appreciation in the rupee throughout last year was backed by robust-to-moderate foreign exchange inflows "" including non resident Indian deposits, foreign institutional investor inflows and foreign direct investments.

The inflows made way into India due to the high interest rate differential between India and 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. However this time, forex inflows look moderate as interest rates have started firming up overseas.

Near term forwards expected at a discount

Near-term forwards are expected to come back to a discount, with apprehension of a shortage of cash dollars. Dealers feel the one-year premium will remain ranged between 0.3-0.8 per cent.

Last week the forward markets remained choppy. Continuous intervention by the RBI to tame cash dollar shortage resulted in falling forward premiums.

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