Financial Daily from THE HINDU group of publications
Friday, Jul 18, 2003
Financial Daily from THE HINDU group of publications Friday, Jul 18, 2003 |
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Money & Banking
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Forex Forward premia drop Our Bureau
MUMBAI: Forward premia slipped by 20 basis points on Thursday, following the RBI announcement of capping interest rates on NRE deposits. The six-month premium ended at 2.31 per cent (2.65 per cent) while the one-year forward closed at 2.22 per cent (2.49 per cent). While some forex traders feel that this could be the beginning of some softening in the premia, others are not certain about whether there will be a long-term impact. One analyst said forwards were unlikely to fall drastically as most deals were being done on cash basis. According to Mr U. Venkatraman, Head — Forex and Money markets, IDBI Bank, ``The RBI's latest move to cap interest rates on NRE deposits has given a signal to the market that interest rates in India for expat deposits need to be aligned with international rates. With this, opportunities on the much talked about arbitrage window get minimised'', he said. The domestic currency closed steady at 46.2150/2250 against the greenback on Thursday, as compared to Wednesday's close of 46.20/21. The RBI today clamped a ceiling on the rate of interest on NRE deposits. This is expected to bridge the wide difference in interest rate being offered to NRI depositors in India and the prevailing rates overseas. The rupee opened at 46.21/24 and slipped to an intra-day low of 46.30 and firmed to a high of 46.19 before close. A section of the market seems to have also taken the view that there might not be much more room for a further appreciation for the rupee. Analysts say that with the REER catching up and the dollar strengthening overseas, it is unlikely that the rupee will gain sharply in the medium term. ``The NRI inflows might also come down, although we still might continue to see the FII and the FDI interest bolstering the market. In fact, if NRIs take a view that the rupee will appreciate further, they are likely to continue to remit,'' said a forex dealer.
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