Importers have started covering their uncovered foreign exchange exposures, even as the rupee depreciated to 45.78 against a dollar on Thursday from closing levels of 45.41/42 last week.
According to dealers, the depreciation in the rupee has been driven by the Reserve Bank of India's move to stem its rise at a time when foreign exchange inflows have started drying up.
Given the situation, the market is uncertain of a short-term view, and feels that the rupee will depreciate further.
The rupee has not only lost close to 1 per cent against the greenback since the beginning of this week, but has also slipped almost Rs 2 against the pound sterling and Rs 1.15 against the euro.
According to an informal market estimate, the RBI has absorbed close to $500-750 million in a week to help the rupee depreciate.
Dealers said importers were covering mostly in the near-term forwards market, but if the rupee continued to fall, they would step up the exercise.
As a result of continuous import covering today, forward dollars shot up, with the six-month dollar commanding an annualised premium of 0.14 per cent, against a discount yesterday. The one-year forwards went up from 0.21 per cent to 0.35 per cent.
Though the one-month and three-month forwards are still at a discount of 1.1 per cent and 0.25 per cent, respectively, the level of discount has reduced substantially.
Partha Mukherjee, head of treasury at UTI Bank, said in the medium term, the rupee was set to gain on the back of foreign exchange inflows.
Piyush Kaul, head of foreign exchange at HSBC Bank, said while short-term losses were possible, in the medium term, the rupee could stabilise at around 45.50 since there was no reason for the rupee to depreciate, besides the technical factors.
However, S Bhat, general manager, treasury, Bank of India, is bullish on the rupee. "It will bounce back to 45.35 on the back of exporters' receivables and foreign exchange inflows and invisibles," he said.
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