India one-month dollar forward premium at highest in two decades on large dollar flows
From Swati Bhat
MUMBAI (Reuters) - India's short-term forward premiums rose on Tuesday with one-month trading in dollar / rupee premiums at their highest level in more than two decades as massive dollar inflows towards an IPO resulted in distorted prices.
The partially convertible rupee was broadly stable at 73.91 / 92 per dollar at 8:30 AM GMT, compared to the closing price of 73.9150 on Monday, after previously rising to 73.7725.
"As long as the carry is at this high level, nobody will make a long dollar," said the head of foreign exchange trading at a private bank.
A slight decline in local stocks, each down 0.1%, coupled with the global dollar strength held the rupee's early gains.
The US dollar extended its gains and triggered months of decline as investors weighed the chances that a recovery in the US economy would raise interest rates, waiting for upcoming data and policy speeches for clues.
India's one-month forward premium was listed at 0.51 rupees after hitting 0.64 rupees at the start of the session, the highest level since at least 2000.
The 1-year forward premium reached rupees 4.00, the highest since August 2016.
"It's mainly due to excess dollars in the system, mainly accumulated through offshore settlement, and it was exacerbated by Powergrid flows," said a separate trader at a private bank.
PowerGrid InvIT's IPO closed on subscription Monday and had received a total of $ 2.78 billion in subscription.
Traders said the sudden unexpected spike in futures premiums made the spot market highly illiquid and volumes are likely to remain subdued until futures premiums are correct.
"A lot of banks have suffered huge losses from such unpredictable forward movements. I think RBI needs to find a solution," said Paresh Nayar, head of currency and bond trading at First Rand Bank.
(Reporting by Swati Bhat; Editing by Philippa Fletcher)
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