FOREX Market
The rupee is expected to move in the range of 36.18 and 36.25 against the dollar in the inter-bank forex market this week. No significant changes in dollar inflows or outflows are visualised.
The scenario with regards to the forward premiums, however, is less certain--market players are expecting a cut in the bank rate and/or the cash reserve ratio in the credit policy to be announced tomorrow. If either or both of these cuts come through, premiums are likely to slip below the five per cent, ranging between 4.75 and 5.2 per cent.
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The market is awaiting the announcement of the RBI's busy season credit policy. Only after the policy is announced will the market be better able to tell what trend it follows, said a dealer of the movements expected in the spot and forward segments of the forex market in the coming week.
With reference to the market, banks expect the RBI to raise the limit for bank investments overseas. They expect RBI to add depth to the forex market by increasing the number of players particularly in the forex market. Bankers expect FIIs and non-resident depositors to buy forward premiums. Another measure is a cut in the bank rate orCRR
Any or all of these measures will result in forward premiums softening in a knee-jerk reaction. Market sources expect the six-month to one year forward premiums to come down from the present range of 5.2 to 5.7 per cent to a new range of 4.7 to 5.2 per cent. Given the steady dollar inflow in the forward market and the general perception of good supplies, it is unlikely that premiums will rise above these levels unless there is some unexpected demand or RBI intervention.
On the other hand, if the rate cut does not materialise, premiums may harden as the market is taking positions based on expectations of a rate cut.