Rupee moves up, forwards are firming

Exporters cancel forward contracts.

The spot rupee-dollar exchange rate appreciated, and forward premiums across tenures firmed up yesterday.

According to market dealers, while the spot dollar gained around 12-13 paise during the day, forward premiums went up by 10-15 basis points over Tuesday's closing levels. The spot rupee opened at 44.87/88 and closed higher at 44.7450/7550 to a dollar.

The spot rupee on Tuesday hit a 45-month high of 44.87 following robust inflows and the apparent lack of intervention by the Reserve Bank of India (RBI).

But foreign exchange dealers said the upswing of the rupee, both spot and forward, could be a temporary phenomenon and might last till this Friday. They added that the rupee was appreciating because foreign institutional investors (FIIs) had paid for their allotment of shares in the recent government company public floats and that the inflow would end by Friday.

Annualised three-month and six-month forward premiums went up to 0.65 per cent and 0.87 per cent, respectively, against closing levels of 0.55 per cent and 0.72 per cent yesterday. Dealers said the one-month annualised forward premium has already shot up over the last few days and was hovering at around 1.1 per cent. It was trading at a discount a few weeks back.

Forward premiums till some time ago were supported by the Reserve Bank of India (RBI) through sell-buy swaps. The RBI did this in an attempt to supply cash dollars in the market with an underlying contract to buy it back at a later date, said dealers. Although there was no demand for forward dollars, they commanded a premium because of the RBI's intervention.