MUMBAI: Concerns over a persistent shortage of US dollars drove the USD/INR overnight swap rate and forward premiums lower on Tuesday, while the rupee was largely flat in the spot market.
The Indian rupee was at 83.2625 against the dollar by 10:20 a.m. IST, little changed from 83.2575 in the previous session.
The USD/INR cash swap rate fell to a low of 0.04 paisa before recovering to 0.14 paisa.
Forward premiums declined across tenors and the 1-year implied yield hit a two-month low of 1.61%.
The dollar shortage is probably reflecting the “lingering impact” of the Reserve Bank of India’s $5 billion swap maturity and the equity outflows, while the dollar demand from importers is not helping, traders said.
The RBI’s sell/buy USD/INR $5 billion swap matured last Monday. Since then the USD/INR overnight swap rate has been quite choppy.
There has been limited impact on the USD/INR spot from the drop in forward premiums.
The 2-month forward premium is at its lowest since 2011.
India rupee likely to struggle despite relief for Asian peers
“None of the traders are keen to go long on the pair (USD/INR) although near-term swaps are this low,” a foreign exchange trader at a foreign bank said, referring to the RBI’s persistent defence of the local unit.
The rupee, on Tuesday, held its ground against the pressure faced by Asian peers.
The Japanese yen fell below 150 to the dollar after the Bank of Japan made a small tweak to its bond yield control policy, disappointing speculators who had expected more.
Indian equities dropped, tracking their Asian peers.
Overseas investors have sold equities worth $2.74 billion in October.
“The rupee could continue to struggle until the foreign capital inflows improve substantially,” said Amit Parbari, managing director at advisory firm CR Forex.
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