Rupee seen ranged, but volatile

OUTLOOK/ CURRENCY

The spot rupee is expected to hover in the 45.30-45.80 range this week. In the worst scenario, it could slump beyond 46.00, dealers said.

The market is likely to remain volatile. Dollar sales by exporters will force the rupee to appreciate, while lack of formidable foreign exchange inflows and the dollar's appreciation overseas will curb the rupee's rise, dealers explained.

Although dollar weakened against most currencies last week, it continued to appreciate against the Indian rupee. The bearish outlook on the rupee has been stirred by the fear of a sell-off spree by foreign institutional investors (FIIs).

These investors are understood to be liquidating their positions and adopting a wait and watch policy till the budget announcement. The budget will lend clarity to the stance of the new government at the Centre on important policy matters.

Although the common minimum programme was supposed to throw some light on the policy stance, it could not. Therefore, as against the expectation of the rupee ruling stable last week, it slipped down further.

Foreign exchange inflows have been muted last week. The foreign exchange reserves reversed the rising trend in the week to May 21, recording a loss of $ 56 million to $118.572 billion as against $118.628 billion last week.

During the last few weeks, exporters have been booking receivables in the forwards market whenever the rupee depreciated. However, last week, demand from importers cropped up, destabilising the spot market.

Forwards to remain in discount zone

Forward dollars will remain in discount this week as importer demand to cover open positions will be countered by sale of dollars by exporters with every low reached by the spot dollar.

Dealers feel that if there are good dollar supplies in the spot forex market and the rupee appreciates, exporters will rush to realise their receivables. This will push forward dollars into deeper discounts. In fact, dealers the forward market will stay at a discount for some time to come.

This is because, several sell-buy contracts entered into by banks with customers to lend in dollars are yet to mature. In cases where they have matured, customers preferred to roll back as dollar loans are cheaper.

However, the discount on dollars is expected to come down as dealers feel there could be some importer demand for covering payment obligations. This will get coupled with the approaching month end. They feel importer demand has to be really voluminous to beat the rush for exporter sales (of dollars) and force the discounts into premiums.

Although there was a view that the spot rupee will stabilise after the formation of the new government at the Centre, albeit with a depreciating bias, it is not the case. This is because political uncertainty continues as far as the government's stance on reforms is concerned.