FOREX MARKET
The spot rupee is expected to range between 35.73 and 35.80. If the statements of the finance minister P Chidambaram are any indication, say market sources, the Reserve Bank of India (RBI) is likely to support the dollar if it strengthens beyond the 35.74 levels. In the forward segments, the premiums are expected to strengthen, ranging between 4.75 and 5.25 per cent. Market sources attribute this to higher call rates.
As has been observed in the past few weeks, the spot segment of the market is likely to witness dull trading. There has been no activity in the spot market during the last few weeks.
The RBI has entered the market at various levels between 35.79 and 35.88.
However, it has not been very regular in the market.
The supply of dollar in the spot market has been very good. Bankers say the inflow has been from foreign direct investments, foreign institutional investments, as well as mounting non-resident deposits with banks.
The demand for the spot dollar from the corporate sector has not been very high. While inflows have been high, outflow of dollar have not been that high. Hence, there is a steady tendency of the rupee to appreciate.
Only when the RBI comes in to make some purchases does the dollar tend to strengthen.
The other major player who has an weakening effect on the rupee is the State Bank of India (SBI).
In the forward market, the paying pressure has been increasing. However, the premiums have remained soft.
They are not expected to strengthen too much. The factor that could see some strengthening of the forward premiums this week is the auction of the three-year Government of India paper on May 28.
This auction is expected to suck out Rs 3,000 crore from the system. This could result in a firming up of call rates in the money markets and a consequent firming up of the forward premiums.
However, overall prediction for the forex markets this week is one of easy liquidity conditions as good supplies come in both the spot and forward segments of the market.
