Re seen ranged

OUTLOOK/CURRENCY

The spot rupee is expected to rule in the range of 43.60-43.90 against the dollar this week on the back of robust dollar inflows.

Majority of the inflows are expected to come in from foreign institutional investors as part of their participation in the ongoing disinvestment programme.

The upside in the spot rupee-dollar exchange rate seems high yet capped by the Reserve Bank of India's (RBI) intervention.

Under these circumstances, the role of the RBI seems crucial.

Dealers feel that there will be resistance from the apex bank against the rupee breaching the 43 levels.

Any intervention in the spot rupee without the requisite action in the forward market is resulting in exporters booking their receivables in forwards.

Dealers feel that if the RBI is buying dollars from the spot market, it should do sell-buy swaps in the forward market as well.

According to M A Ravikumar, head, global markets, Standard Chartered Bank, the foreign exchange market will henceforth witness a two-way movement and risk management on the part of the banks will have to be prudent.

While the spot rupee gained around nine per cent from its closing level of 47.40 on April 1, 2003, the appreciation has gained ground since last March 23 when the spot rupee had breached the 45 level.

Compared to the then closing level of 44. 87, the rupee in a week's time has gone up by 2.7 per cent.

RBI stand to guide forwards

The movement of premiums on forward dollars will depend on the role of the RBI in the forward market. If the RBI intervenes by dollar supplies in the cash market through sell-buy swaps, it can manage the cash dollar shortage as well as keep the premiums high through a paying pressure in the market.

However, if it does not intervene, the market might witness a predominant receiving pressure from exporters. With the rupee sharply appreciating against the dollar, exporters are in a hurry to realise their receivables. As part of this, they are receiving premiums rather than paying as the receivables are in dollars.

On the other hand, importers are watching the currency scenario. Occasionally they enter the market to hedge their payments when the rupee is going up to lucrative levels which they feel could not be sustained. Under such a situation, forward premiums will soon start falling on all maturities.

Last week forward premiums declined towards the end of the week with exporters rushing to book their receivables. Premiums jumped substantially in near-term maturities after exporters cancelled their forward contracts to receive premiums.

However, the scene reversed when the appreciation in the rupee continued during the entire period. With RBI not in the market, most of the maturities witnessed a fall in premiums.

Dealers said that if the near-term premiums are more than long-term ones, there will be rise in arbitrage.