Pressure on the rupee is expected to ease soon with forward premiums likely rising from decadal lows after the Reserve Bank of India (RBI) this week signalled its intent of minimal future interventions in the currency-derivatives market by easing instrument-level curbs to encourage potential dollar inflows.
The local unit advanced Thursday against the US dollar.
“Forward premiums are bound to rise as banks would swap their deposits garnered from non-resident Indians through sell-buy forward contracts,” said Bhaskar Panda, executive vice president,
. “Actually, premiums had dropped artificially, putting pressure on the rupee’s exchange rate. Rising forward premiums are more of a correction and a blessing for the rupee.”
Forward premiums rose 7-9 basis points Thursday across one-month, three-month, six-month and 12-month maturities, showed Bloomberg data compiled by ETIG.
Rupee Closes at 79.18/ $
The increases follow a suite of measures announced late Wednesday by the central bank to arrest the slide in the local unit and prevent imported inflation from worsening.
A basis point is 0.01 percentage point.
Around mid-June, the premiums had dropped to levels last seen in 2010-2011, ET reported on June 16.
A day after the RBI announced measures to shore up forex reserves and arrest the local unit’s free fall, the rupee gained 0.16% to close at 79.18 Thursday. It was the fourth best performing Asian currency for the day. The one-month volatility index dropped 11 basis points.
“Forward premiums had dropped due to the RBI’s intervention strategy,” said Anindya Banerjee, currency analyst, Kotak Securities. “That was creating an additional pressure on the rupee. The central bank seems to have delivered a masterstroke introducing NRI deposit relaxations, which will now likely serve both purposes.”
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