Importers to put pressure on Re

CURRENCY

Intervention of the Reserve Bank of India is crucial for the movement of the spot rupee. Inflows from foreign institutional investors are moderate.

Exporters in anticipation of a further depreciation in the rupee are booking their proceeds rather than realising it upfront. Therefore, the supply of forex inflows is just adequate.

On the other hand, the market feels the spot rupee is overvalued at 43.70/80 and it should be at around 45 as per the real effective exchange rate band.

There will be additional pressure on the rupee from importers for making month-end payments.

Therefore, the market feels the rupee will be rangebound in the 43.75-43.86 band.

Forwards to trek northward

 

Forward premiums are likely to firm up as exporters and inter-bank players will look to book dollars in the forward market. Exporters, hoping for a further depreciation in the rupee, will book dollar proceeds in the forward market.

However, inter-bank dealers, to play it safe before the Budget, will dabble in booking both rupee and dollars, albeit after squaring up their existing positions.

Given that most banks, which had bought cash dollars fearing a shortage, will now be unwinding their positions, will put additional pressure on forward dollars.

Recap: Backed by active central bank intervention, the spot rupee fell to its intra-day lows of 43.80/82 to a dollar. Forward premiums, however remained easy compared with the rupee's volatility.