The sharp spike in the rupee’s forward premium has eased somewhat, reducing the immediate pressure on forward-dollar pricing even as the rupee weakened against the dollar.
The one-month dollar/rupee forward premium jumped to around 50 paise on October 8, with the forward rate at 97.23 against spot at 96.7675. It subsequently narrowed to 15-20 paise as the spot rupee weakened, bringing the gap to the earlier forward quote down from about 6.2% annualised to roughly 1.9-2.5%.
The retreat suggests that the immediate squeeze in forward pricing has eased. But it does not necessarily mean traders have become more confident about the rupee: the gap narrowed partly because the spot exchange rate moved closer to the earlier forward rate. On Bloomberg’s offshore measure, one-month non-deliverable forward (NDF) points stood at 45.01 paise on October 9, above the 12-month average of 28.99 paise: indicating that the underlying premium remained elevated even as the spot-forward gap narrowed.
On Bloomberg’s offshore measure, one-month NDF points stood at 45.01 paise on October 9: well above the 12-month average of 28.99 paise, though far below this year’s peak of 106.23 paise in April and the low of 11.35 paise in February. This indicates the underlying premium remains elevated even as the spot-forward gap narrowed.
“The gap to the 97.23 forward is now about 15 to 20 paise, close to what the gap between Indian and US interest rates justifies. So, the premium was not a quirk: the market was signalling a weaker rupee, and that move has largely arrived,” said Rajeev Sharan, head of research at Brickwork Ratings.