FOREX Market
The rupee will hold steady against the dollar this week with little interest from banks and corporates, as they watch the authorities' moves for clues on exchange rate movements, foreign exchange dealers said.
They said they expected spot rupee to range between 42.40 and 42.90 per dollar in light trade. Forward dollar premiums will hold at last week's close levels, they added _ the six-month dollar may range between 11 and 15 per cent. Dealers did not expect the Indian currency to strengthen from the current levels as economic fundamentals did not warrant it.
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"The central bank's stance will be crucial," a foreign bank dealer said. The Reserve Bank of India (RBI) on last Thursday clearly signalled its support for the rupee which recently came under pressure by inducing a temporary rise in near-term rupee interest rates and dollar premiums.
The apex bank raised the cash reserve ratio (CRR) for banks to 11 per cent from 10 per cent which will suck out around Rs 5,000 crore by August 29. It hiked the fixed rate on its short-term securities repurchase (repo) agreement to eight per cent from five per cent.
In response, the near-forward dollar premiums firmed and one-month premiums surged to near-19 per cent levels compared with just under 10 per cent earlier.
RBI's direct intervention through sell-buy swaps for August to October kept the premiums propped up.
The central bank's defence package was in response to the rupee's weakening to a lifetime low of 43.70 per dollar amid uneasiness over the fate of emerging markets' currencies following the rouble's devaluation on Monday. The rupee recovered to 42.54-60 by the week end.
Another niggling factor is the political uncertainty. The AIADMK threatened to withdraw support to the BJP-led coalition government, a possibility playing on market nerves, dealers said.
Dealers predicted limited corporate demand as the high cost premiums would act as a deterrent, but they expected increased exporter sales. They said the central bank may continue with sell-buy swaps to keep up the pressure on dollar premiums.