Dollar rupee forward premiums crashed following an acute dollar shortage in the cash market. The shortage emerged from clubbing up of month-end demand for dollar payments and squaring up of open positions by banks.
According to banks, cash spot dollars was ruling around par against the usual premium of 40-45 basis points. The demand for cash dollars went up as most banks wanted to square up their positions to prevent future losses arising out of the falling premiums.
Most banks had entered into sell-buy swaps whereby dollars were sold in the spot market to receive in forward. While the banks were left with open dollars receiving positions, a falling forward premium hit the market with the players incurring losses.
The fall was the steepest in the near term as one-month premium fell by 92 basis points from last Friday
