Analysts and heads of treasuries at banks have opined that `the Rajan effect', the impact of the measures unveiled by new Reserve Bank Governor Raghuram Rajan - will continue to play out in the forex market this week as well.
Market participants see the rupee rising to 63 against the dollar this week and trading in the 63-65.50 range. Rajan's first few measures include swap window facility for banks to lure in NRI funds, and reversal of some of the controls that his predecessor Governor D Subbarao had introduced.
Also, the August 31 meeting that economic affairs secretary Arvind Mayaram and banking secretary Rajiv Takru held with foreign banks who control the domestic forex market had a positive impact on the rupee, say analysts.
"The rupee will continue to be strong. It was already in the overshoot turf. The measures announced by the RBI have come as a catalyst," said Harihar Krishnamoorthy, treasurer at the South African lender FirstRand Bank.
Rajan, after taking over from D Subbarao on September 4, has announced a slew of measures to attract inflows from overseas investors, including the NRIs.
To boost foreign fund inflows and help banks get funds at cheaper rate, Rajan announced a special window to swap foreign currency non-resident (FCNR) dollar funds mobilised by banks.
The RBI also doubled the re-booking amount that exporters can do on their cancelled forward contracts to 50 per cent from 25 per cent. It also extended the facility to importers who were not allowed to re-book their cancelled forward contracts.
Further, it restored the permission to invest 400 per cent of a domestic corporate's networth in foreign market provided it has raised the funds through external commercial borrowing (ECBs) route. The measures announced by Rajan were well-received by the markets with the rupee recovering by 3.5 per cent between September 3 and 6.
Last Friday, the rupee closed up at 65.24 while the Sensex rallied more than 1,000 points in three days to Friday. Another positive rub-off will be the less than expected jobs data from the US, as it is expected that the Fed will hold more signals to go ahead with its tapering, which is scheduled to begin from November.
Forex experts feel the RBI move to allow a special window to swap FCNR dollar funds could fetch around USD 10 billion. "The move (FCNR-B) should fetch USD 8-10 billion. It would also help in shifting rupee risks away from NRIs at a time of extreme volatility," Bank of America Merrill Lynch said in a note.
RBI on Friday also allowed non-resident investors to purchase shares of listed domestic companies through stock exchanges under the foreign direct investment route. "The step will boost the sentiments. The rupee needs to appreciate this week also," Dhanlaxmi Bank treasurer Srinivasa Raghavan said.
He sees the rupee rising to 64 as of Tuesday, which will be the first trading day as banks would be shut on Monday on account of Ganesh Chaturthi. Some dealers attribute the possible rupee gain next week to higher dollar selling by exporters in anticipation of further rise in the local currency.
"Technical charts are showing that the last week's momentum will continue this week also. Participants who are having long positions will square off their positions," said Ashok Mittal, co-head at Emkay Global Financial Services.
The RBI on Friday also more than trebled the currency swap arrangement with Japan to USD 50 billion from USD 15 billion. "The bi-lateral currency-swap arrangement with Japan has been increased and this will increase the RBI's ability to intervene in the forex market whenever required," said a dealer with a private-sector bank.
Analysts, however, feel the demand from importers tomorrow, after three days of holidays, could put some pressure on the local currency. Market participants will wait for the trade data due this week for further direction.
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