Forward premium on dollar rises

MUMBAI, Aug 18: The rupee weakened against the forward dollar in the face of increased demand from corporates at the inter-bank foreign exc...

MUMBAI, Aug 18: The rupee weakened against the forward dollar in the face of increased demand from corporates at the inter-bank foreign exchange market here on Monday. The sharpest weakening was seen in six-month rupee, which lost ground by 20 paise on a single day of trading.

quot;This is sharpest rise in six-monthly forwards annualised in the past four months,quot; a treasury chief with a leading corporate said. Six-monthly forward, which closed at 4.73 per cent on Thursday, closed at 5.83 per cent on Monday. Dealers said that they expect the six-month forward rates to touch 6 per cent on Tuesday.

Forex analysts said that the apex bank will be extremely happy with the day8217;s development as it wants forward rates to rule at higher levels. quot;The RBI wants six-monthly forwards to rule at somewhere between 6-6.20 per cent as it is comfortable with a weak rupee to help exporters,quot; a forex analyst with a leading forex brokerage said.

Forex dealers said that one of the main reasons for the jump was a statement made by RBI deputy governor Y V Reddy in Panaji that the rupee was overvalued and that it needed correction. quot;The market being psychologically driven, reacted and forwards across the board went up,quot; a dealer with a foreign bank said. He added that another reason for forwards shooting up was inter-bank call rates remaining at 8-8.5 per cent levels.

Dealers also reported that a large petrochemical major was buying dollars to fund its import demand. quot;Some corporates were seen covering but importers were not there in a big way,quot; a dealer with a private sector bank said. According to a dealer, the petrochemical major was seen buying February dollars as a result of which premiums shot up from 87-90 paise to 104-107 paise.

According to some forex dealers, the conversion of FCNR A to FCNRB deposits also had an impact on the rates.