The Hindu Business Line : Forward premia on dollar hit new lows

FORWARD premia on dollars touched near all-time lows on Wednesday following heavy selling of forward contracts by exporters. Contracts up to four months were on discount.

The six-months premia fell by over 60 basis points while the one-year dipped by over 40 basis points, comparable levels were seen on May 21. Exporters are single-minded in their expectation that the rupee will appreciate and are out of necessity, locking into forward contracts.

Said Mr Ravi Pai, Head-Forex & Derivatives, HDFC Bank, ``Today's fall is a result of the consistent selling of forwards by exporters and a reaction to the rupee's appreciation in the spot market over a period of time.''

Another reason for the fall in premia, according to a forex analyst, is the buying of spot dollars by banks and the simultaneous buy-sell swap they perform in the forward market adding to the supply of forwards in the market. This excessive supply leads to lowering of premia.

Theoretically, the dollar forward premia are supposed to reflect the interest rate differential between the US and India, which is now 3.50 per cent. But at the moment, the forward premia reflects the expectation of the $-Re rate, said a dealer in a private bank.

The six months forward closed at 0.11 per cent (0.74 per cent) and the one-year forward closed at 0.37 per cent (0.81 per cent). The four months closed at - 0.10 per cent while the three months closed at - 0.25 per cent (0.95 per cent).

In the spot market, the rupee closed at 45.38/39 against the dollar down 5 paise from Tuesday's close of 45.32/33. Though good dollar inflows were seen and rupee gained about 13 paise intra-day from opening levels, banks going long on dollar positions took the sheen off the domestic currency.

The Indian rupee today opened at 45.3850/3950 and hit an intra-day high of 45.25/50 against the greenback.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Boeing dangles savings carrot before IA

India entering golden era, says Deutsche exec

Forward premia on dollar hit new lows

LIC sole bidder for Harshad's ACC shares?

SBI goes for fast track promotions

Bull run inflates FIs equity portfolio