FOREX Market
The rupee is expected to be fairly steady this week quoting at the same levels as the previous week.
The unexpected, albeit marginal, spurt in corporate demand for the greenback, observed last week, is expected to continue this week, keeping the rupee from appreciating despite sustained capital inflows.
Market players largely expect the rupee to continue in the range observed last week.
That is, spot rupee may range between 36.20 and 36.26. Forward dollar premiums are likely to hover in the 4.75 to 5.3 per cent band.
The rupee was steadily appreciating on the back of continued inflows and limited demand from banks and corporates.
The RBI had to intervene in the markets to contain the rupee's rise. However, last week, there was a slight increase in corporate demand in the spot market.
With trading volumes remaining thin the increased demand saw the rupee slip by about nine paise to 36.26 during the week. With the rupee steadily slipping, banks are also entering the market buying dollars in an attempt to book profits.
This is further adding to the dollar demand in the market. If the rupee depreciation accelerates, the Reserve Bank of India (RBI) might enter to prevent any shift in market sentiment that might result in volatility.
Premiums on the forward dollar have hardened over the last week.
Earlier in the week, RBI intervened in the forward market buying forward dollars for end October 1997 outright.
This reversed the downward slide of the forward premiums. The six-month annualised which slipped as low as 4.9 per cent on Wednesday started strengthening, although marginally.
It closed the week at 5.21 per cent. If the premiums continue to strengthen, the importers might enter the market.
This could keep up the pressure on the forward dollar premiums. With premiums strengthening there is likely to be some receiving interest from exporters also.
