20000125

Indian rupee dips, month-end dlr demand a factor

BOMBAY: The Indian rupee was slightly weak in early trade on Monday amid expectations the weekend inflows will be absorbed by the month-end demand from importers and foreign currency loan debtors, dealers said.

"Some demand for meeting month-end obligations will emerge during the day and this will mop up the dollar supplies," a dealer at a foreign bank said.

The rupee was quoted at 43.59/60 per dollar at 9:11 a.m. after it opened at 43.585/5875, compared with on Friday's close of 43.5725/575. Dealers said there was a gradual build-up of demand for dollars which was not being reflected in the forward premiums. "I think there is some demand for cash driven remittances which is why there is no impact on forward rates," a chief dealer at a private bank said. "After this demand is met I expect the rupee to strengthen," he said.

Dealers said the expectations of interest rates falling was likely to attract further capital inflows. "There are hardly any interest rate sensitive investments in the country, so the classical theory does not hold good here..On the contrary it will lead to foreign inflows on expectations of better corporate performance," a dealer at a private bank said.

Dealers said forward premiums are likely to be stable while awaiting a signal from the Reserve Bank of India (RBI) on the direction of interest rate movements.

The market has been expecting easier interest rates after the government cut rates on some small savings schemes recently, but most banks are waiting for the RBI to lower its interest rates before cutting their lending rates.

Forward premiums rose slightly with the six-month forward premium ending Friday at 3.13 percent compared with on Thursday's close of 3.00.-Reuters