Rupee may look up

Outlook/CURRENCY

The spot rupee is due for further gains this week as the dollar is declining in the global markets and the Reserve Bank of India (RBI) has stopped intervening in the spot market.

G Narayanan, Bank of India's general manager, treasury, said there is ample scope for the rupee to appreciate further. Given the inflows he expects the spot rupee in the short-term to range between 44-44.10 against the dollar.

K Harihar, treasury head at Development Credit Bank, said the gentle appreciation in the rupee will continue given the cushion of foreign institutional investor inflows, foreign direct investments and exports. Though the rupee will have a strengthening bias, there will be persistent importer demand which will keep it range-bound at 44.25-75 per dollar, he said.

Dealers feel that the only reason for the rupee to depreciate was the RBI's intervention. Exporter sources maintained that despite the rupee appreciating there has not been much dent on the volumes as exports have shown considerable growth in the last quarter and this trend is expected to continue this quarter as well.

The major reason for the good dollar inflows is the robust economic fundamentals with the gross domestic product growing by more than eight per cent. Forex reserves as on March 19 have grown to $109.998 billion and on a weekly basis it has grown by $402 million. Last week the spot rupee had breached its four-year high of 44.47/48 to a dollar and most of the days it ended with gains.

While dollar demand from oil companies and a large petrochemical corporate weighed on the rupee, robust dollar sales from exporters and foreign funds limited the downside.

Forwards seen ranged

Forward premiums will be range-bound this week with an upwards bias owing to increased demand from importers to hedge their exposures in near-term papers. Importers are of the view that the current spot rupee levels cannot be sustained for a long period so one should cover his requirements in advance.

Public sector banks, on behalf of the Centre, will continue to intervene in the forwards market through sell-buy swaps to supply the market with cash dollars in case there is a shortage appears towards the approaching month end.

Both these factors will ensure the forward dollars remain at a premium as against going into discount in the month end. Exporters canecelling their forward contracts will also lead to firming up of the premiums which actually happened at the beginning of the week when RBI intervention firmed up premiums.