Volatile run ahead for the spot mart

Outlook: Currency

The rupee is expected to trade in a range of 44.00-44.20 per dollar this week.

The spot rupee market is likely to witness volatile trade owing to abrupt dollar gains overseas and a significant cash-dollar shortage in the local market.

The rupee ended last week at 44.0350/0450 per dollar, firmer than Thursday's one-month closing low of 44.1250/1550.

The local unit, which posted its second successive weekly loss, is still up 3.5 per cent in 2004 on robust foreign investment in local assets, remittances from exporters and inflows from corporates who have raised loans abroad.

The surge in foreign capital inflows in the past two years has led to a situation where the Reserve Bank of India (RBI) had almost run out of instruments to sterilise the dollars towards the latter half of March, when it briefly loosened its grip on the local currency.

This sparked a rally that took the rupee to a 51-month closing high of 43.5450/5500 per dollar on April 7, before the RBI reasserted its grip on the currency market.

Meantime, the general elections, which began on April 20 and ends on May 10, has not dampened the enthusiasm of overseas investors as they continue to pour money into the stock markets and banks deposits.

Their net purchases of shares and debt so far in 2004 total $4.4 billion, already more than half of the $7.7 billion they had invested in 2003.

For the week ended April 16, India's foreign exchange reserves rose to $117.592 billion from $116.060 billion in the previous week, the RBI said in its weekly statistical supplement on Saturday.

The dollar's gains overseas have turned exporters wary and they have refrained from dumping the greenback in a major way, said a dealer with a private bank.

Forwards expected to trade at a discount

In the forwards market the dollar is expected to tumble further. The demand-supply mismatch is expected to widen the discount in the forwards market. Corporates are seen selling two to three years receivables in the market. The market is highly oversold, said a dealer with a private bank.

The huge discount in the market is mainly on account of short supply of dollars in the in the cash and spot market, which has resulted in banks transacting buy-sell swaps to cover positions. The six months annualised premium ended the week at -0.07 per cent against -0.26 per cent in the previous week.