Fall In Dollar/Rupee Forward Premiums To Correct, Says RBI's Michael Patra

The fall of the dollar/rupee forward premium is temporary and is unlikely to persist as the rupee shortage in the spot market is getting alleviated, according to RBI's Michael Patra.

The one-year onshore dollar/rupee forward premium has fallen to 1.70%, its lowest level in over a decade, according to Bloomberg data.

"Forward premium has started to correct today and if you see, flows are coming back," the deputy governor said in a post-policy briefing. "There was a downward dip in the exchange rate and people responded by holding back incoming proceeds."

"Now that the RBI announcement has been made and the governor has given specific assurances about the exchange rate and external sector, we see premiums rising," he said.

The appreciation of the US dollar this year, which precipitated a large-scale depreciation of all major global currencies, including the Indian rupee, has drawn wide attention, Governor Shaktikanta Das said. "It is important to make an objective assessment of the movement in the rupee in the context of global and domestic macroeconomic and financial market development."

When compared to its peers, the recent strengthening of the U.S. dollar has had the least effect on the rupee. In fact, the rupee has appreciated against all other major currencies except a few.

The story of the rupee has been one of India’s resilience and stability, Patra said.