Dipping rates differential may slash premiums, spot grooved

 "We do not expect much change in the forex market during the week. There may not be much inflow on account of exports, but the greenbacks will flow into the market through foreign direct or institutional investment route. However, the central bank will continue to help the exporters by checking the rupee appreciation," said a dealer. He added that the Indian currency is still overvalued by around 1.5 per cent against the greenback on a trade-weighted real effective exchange rate basis.

 In the forward premiums market, premiums are likely to go down over the week. Forex dealers are expecting the 6-month annualised premium to be in the 5.40-5.75 per cent range and the one-year premium to hover in the band of 4.75-5.00 per cent.

 A forex head of a private sector bank said, "Forward premiums depend upon the interest rate differential in India and US market. We expect the interest rates to go up in the US while in India it will go down or remain stable. As this will reduce the interest rate differential, premiums are likely to fall during the week."

 The spot ruled in a narrow band of 48.7500-48.8075 on Thursday. The Indian currency opened the day at 48.7500/7525. It touched the day's low of 48.8075 levels as the state-run banks bought dollars heavily. The currency closed at 48.8000/8025. In the forward premiums market, the six-month annualised forward premium closed at 5.60 per cent against Wednesday's closing of 5.70 per cent. The one-year premium dropped to five per cent from its previous close of 5.10 per cent.