The Hindu Business Line : Forward premiums trade at a discount

Dealers feel that the apex bank is trying to absorb the dollar liquidity in order to squeeze out the short positions in the market, more so since the launch of MSBs.

Mumbai , April 13

FORWARD premia across segments between three month to eight months, were trading at a discount, with most players in the market holding on to their view that the rupee will continue to appreciate.

The three month premia was going at -0.45 per cent (0.50 per cent), while the six month premia was trading at -0.11 per cent ( 0.30 per cent).

Currency traders mainly ascribed the discount in premia to the continued dollar inflows in the market, due to which leading corporates, importers andother market participants are sitting short on dollars.

Their expectation is that the rupee will continue to be strong against the dollar in the near term.

In fact, according to currency analysts, the Reserve Bank of India is concerned that a significant number of market players are sitting too short in the market.

Over the past week RBI has been seen actively intervening in the market, by lending support to the dollar.

Dealers feel that the apex bank is consciously trying to absorb the dollar liquidity in order to squeeze out the short positions in the market.

With the premia trading at a discount, those sitting short on dollar are expected to come in and square off their positions.

"RBI has been very active in the market ever since the launch of the market stabilisation bonds; since then they have been mopping up close to $ 150-200 million every day".

In the past 10 days, they would have easily sucked out around $ 1 billion from the market", said a dealer.

Meanwhile, while the near-term outlook for the rupee continues to be that of appreciation, some analysts are circumspect over how long the rupee rally will last.

They expect a correction in the medium term.