The Hindu Business Line : Rupee sheds 14 paise; forward premia flat

THE rupee lost another 14 paise on Thursday closing weaker at 45.77/78 against the dollar in a volatile forex market, compared to Wednesday's close at 45.64. The domestic currency has fallen by 40 paise since last Thursday at 45.38.

The rupee opened at 45.61/63 levels on Thursday. Currency analysts are of the view that by allowing the domestic unit to depreciate, even when the dollar is weakening against international currency majors, the Reserve Bank of India is sending a strong signal to corporates and importers, who are not hedging their foreign currency exposures, that the rupee is capable of moving on either side.

However, it appears that market participants are willing to bet that the depreciation of the domestic currency is probably just a temporary blip in its otherwise appreciating trend in the medium term.

Consequently, forward premia continues to remain relatively flat, with the six and twelve-month premia ending at 0.08 per cent and 0.36 per cent, respectively, compared to its previous closing levels at -0.10 and 0.20 per cent, respectively.

"The rupee will depreciate for the next few days, perhaps even a fortnight and may test 45.85 levels. But even now we don't see too many people rushing for cover. The long and medium-term outlook for the rupee remains bullish'', said Mr Shah Rukh Wadia, Head Treasury, Indus Ind Bank.

Dealers contend that the regulator has been mopping up excessive dollar liquidity from the market. Added to this, there is also some genuine demand for the greenback from corporates, who were buying to square off their near term payables and are jittery enough to buy at the current levels.

Meanwhile, a section of the market seems genuinely confused about which way the market is headed.

Mr R.V.S. Shridhar, Head-Forex, UTI Bank, said it is difficult for the market to form a view on the currency at this point, as the signals are all contradictory to international trends. One has to wait for some clearer direction.

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