An increase in forward premiums could help ease the pressure on Rupee


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Pressurize the RupeeExpectations are that forward premiums will rise from the decadal lows following the Reserve Bank of India ().RBIThis week, ) signaled its intention to minimally intervene in the currency-derivatives markets by relaxing instrument-level restrictions to encourage potential dollar inflows.

Thursday’s advance was against the US dollars.

Bhaskar Panda, executive vice-president, stated that forward premiums will rise as banks swap deposits from non-resident Indians via sell-buy forward agreements.

. “Actually premiums had fallen artificially, putting pressure upon the rupee’s currency rate. Rising forward premiums can be a blessing and a correction for the rupee.

The forward premiums rose by 7-9 basis point Thursday in all maturities: one-month to three-month, six month and twelve-month. This was according to ETIG’s Bloomberg data.

Rupee closes at 79.18/$

These increases are part of a series of measures that the central bank announced Wednesday night to stop the slide in local units and prevent import inflation from getting worse.

Base point is 0.01 percent point.

ET reported that premiums fell to their lowest level since 2010-2011 in mid-June. ET reported the same on June 16.

The rupee rose 0.16% to close at 79.518 Thursday, just a day after the RBI announced measures designed to protect forex reserves and prevent the currency’s fall. It was fourth in the list of top-performing Asian currencies for the day. The one month volatility index declined 11 basis points.

Anindya Benderjee, currency analyst at Kotak Securities, stated that forward premiums have dropped because of the RBI’s intervention strategy. “This was adding pressure to the rupee. NRI deposit relaxations were introduced by the central bank, which seems to be a masterstroke. This will likely serve both ends.


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