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| There are host of factors which will be coming into play during the week. Inflows so far have been good despite profit booking by FIIs. Last week, more inflows were reported through export realisation.
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| With the calendar year coming to a close, customary profit booking by portfolio investors is likely to put pressure on rupee-dollar exchange rate. Moreover, interest rates have been started firming up and even some central banks raised base rates.
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| This might reduce forex inflows as investors will head offshore as the interest rate difference between Indian and other countries will largely diminish.
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| This was one of the factors for the rupee to depreciate. Even the economic outlook released by the Crisil Centre for Economic Research has made a case for the rupee to hover at 45.46 to a dollar by the end of the year.
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| Besides capital outflows, another reason which will largely attribute to rupee-dollar exchange movement is the effect of appreciating rupee on exports, which might record lower volumes this time.
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| At the same time, non-oil imports will go up as the economy is poised for an economic recovery . This will lead to widening of trade deficit which in turn will help the rupee depreciate.
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| Last week, the spot rupee was comfortable not only because of inflows but also owing to export proceeds which are being realised gradually by exporters. Foreign reserves went up to $ 92.7 billion following a weekly growth of $706 million last week.
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| On most occasions, the rupee would have risen much above 45.25, but for the intervention by the central bank.
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Forwards may perk up
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| Forward dollars may go up after hovering below 1 per cent for a long time. The interest rate scenario is uncertain after the RBI hinted at a neutral stance after a sustained soft interest rate bias.
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| Meanwhile, the Bank of England and central bank of Australia have raised their base rates by 25 basis points. This has made banks to think interest rates in India is also sooner or later going to firm up which will eventually push up the forward premiums.
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| This will be primarily one of the reasons to push up the forward premium as banks are buying forward dollars. This will help them to buy dollars cheaper at a later date. With more and more banks preferring to take forward cover, there will be a pressure on forward dollar premiums.
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| Just the reverse will be applicable for exporters, who are selling forward dollars, contracting a rate now to sell dollars at a future date, thus insulating themselves from the rate fluctuations.
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| However with the market divided on the dollar-rupee exchange rate, the number of players taking forward cover to buy dollars will exceed those selling forward dollars. There fore, this week will see a rise in forward premiums. |
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