By Nimesh Vora
MUMBAI, – The Indian rupee was confined to a narrow range on Thursday with demand to buy dollars at the daily reference rate weighing on the currency, while an abundance of dollars sparked a jump in one-day swap costs and forward premiums.
The rupee was quoted at 95.4650 per U.S. dollar as of 11:25 a.m. IST, down less than 0.1% on the day in a narrow 6-paisa range.
While dollar/rupee spot is quiet, there is “substantial” action elsewhere, a currency trader at a bank said, referring to the heavy demand to buy dollars at the Reserve Bank of India‘s reference rate and the jump in the one-day swap cost.
The expiry of August USD/INR futures contracts on Thursday triggered heavy demand for dollars at the reference rate, with banks willing to pay a premium of up to 1.75 paisa to buy at that level, bankers said. The demand was linked to the unwinding of arbitrage positions that traders had built between the futures and NDF markets.
Open interest in the August USD/INR futures contract on the NSE has climbed to around $3.5 billion, driven by arbitrage activity and RBI intervention.
Meanwhile, the one-day USD/INR swap cost surged to around 2 paisa, roughly four times the levels seen in recent sessions. The surge reflected heavy dollar liquidity with banks, traders said, with FCNR(B) inflows a key driver of the increased dollar supply. The RBI’s FCNR(B) swap window for fresh deposits is set to shut on Monday, fuelling expectations of big inflows before then.
After Wednesday’s bank holiday, the market is absorbing two days of inflows, adding to pressure on the swap rate, traders said.
The jump in the cash/tomorrow rate fed into the broader forward market, lifting forward premiums. Near-term forward premiums climbed much more than longer-dated ones.
(Reporting by Nimesh Vora; Editing by Ronojoy Mazumdar)
