Short-term term premiums in India surged on Tuesday, with the one-month dollar / rupee premium trading at its highest level in more than two decades, as massive inflows of dollars to an initial public offering skewed prices. price. The partially convertible rupee was trading largely flat at 73.91 / 92 per dollar at 8:30 a.m. GMT from its close of 73.9150 on Monday after rising earlier to 73.7725 levels. “As long as carry is at such high levels, no one is going to go the long dollar,” said the head of foreign exchange at a private bank.
A slight drop in local stocks, down 0.1 percent each, combined with the strength of the global dollar, kept the rupee’s early gains held high. The US dollar extended its gains, unwinding a month-long decline as investors weighed the odds that interest rates would be forced up by a US economic recovery and waited for data and policy speeches to come for further. clues.
India’s one-month term premium was listed at 0.51 rupee after touching 0.64 rupee earlier in the session, its highest since at least 2000. The one-year term premium has touched 4.00 rupee, its highest since August 2016.
“It is mainly due to the excess dollars in the system, accumulated mainly from the offshore unwinding and it has been made even worse by the Powergrid flows,” said a separate concessionaire with a private bank.
PowerGrid InvIT’s initial public offering closed on Monday and had attracted a total subscription of $ 2.78 billion. Traders said the sudden and unexpected surge in term premiums has made the spot market very illiquid and volumes are expected to remain subdued until term premiums are corrected.
“A lot of banks are sitting on big losses because of these erratic movements in forwards. I think RBI will have to find a solution to this,” said Paresh Nayar, head of forex and bond trading at First Rand Bank.
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