Forex Market
The spot rupee is expected to trade against the dollar in the 39.45-39.55 region. The market movement would essentially be determined by the strategy adopted by the State Bank of India (SBI).
Premiums have steadily come off following the decision by the Reserve Bank of India (RBI) to cut the repo rate, Bank Rate and cash reserve ratio. The six-month premiums can be expected at 6.5-8 per cent.
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On Friday the Indian currency strengthened to close at 39.4950-5050. There were deals done at 39.4725. The market was witness to good supply and there was cancellation by importers.
Last week, one-month premiums closed at 7.75 per cent, three-month at 6.68 per cent, six-month at 7.54 per cent and one-year at 8.09 per cent.
The haze of uncertainty that characterised the foreign exchange market has lifted and there has been a change in perception on the strength of the rupee.
The spot rupee has been stable and premiums have softened. Exporters have been sighted in the market, while importers are watching from the sidelines.
Given that the money market conditions are easy and call rates have softened this should nudge premia downwards. But whenever the premiums have declined there has been profit-taking by the banks thereby providing an effective floor.
The money market is speculating on a further reduction in the repo rate and if the expectation is fulfilled then premiums could come off further.