Where are rupee premiums on the forward dollar headed?

 R V S SRIDHAR

 Chief Dealer (Money & Forex),

 UTI Bank

 Forex markets appear confused with the events of the month of October. Markets had apprehended a severe dollar shortage at the end of September. Banks had done buy sell swaps in the forwards market at that time in order to fund their accounts.

 It was felt by some that with the Resurgent India Bond redemption out of the way, the forex markets would revert to normalcy in October, but the fall in forwards has exacerbated the confusion.

 To be sure, one reason for the fall was the rush to sell forward dollars due to the slide in the spot dollar.

 Such a decline reduces the value of the dollar. Thus, those expecting to receive dollars on a forward date would sell at the current forward rate rather than sell at the spot rate ruling at the time of receipt.

 These forward sales have added their weight to the already sinking premiums and we finally see today, the markets actually quoting dollars at a discount for forward delivery.

 The fall in forwards means that the markets are pricing the implied interest rate differentials between the Indian and US economies to be zero.

 This is obviously good for importers or others payers of dollars but bad for exporters and earners of dollars.

 On the other hand, the country is now posting a current account surplus that should help to improve the exchange rate in India