Perhaps for the first time, the dollar/rupee non-deliverable forward (NDF) market, the most responsive to events, has been largely unmoved by the crisis surrounding Greece. In fact, the NDF rate has been more bullish about the rupee even as Greece hurtled towards a messy finish, dragging several emerging market currencies down.
The one-month dollar/rupee NDF rate was trading around 63.71/$ on Tuesday. A month ago, the rate was at 64.49/$, which means foreign investors expected the rupee to depreciate by around 1% in a month, but now believe the currency would be stable.
The NDF rate behaviour indicates that foreign investors are growing more sanguine about the rupee than any other emerging market currency. The fact that the Reserve Bank of India has build an impressive cushion of $355 billion worth of forex reserves has given this confidence to foreign investors.
“The NDF bets are now bullish on the rupee right now. Everyone had been bearish in May. Now that the Greece crisis has been sorted out to an extent, things are looking positive,” said Ananth Narayan G, regional head of financial markets for South Asia at Standard Chartered Bank.
The rupee, in the onshore market, has also been reflecting this growing optimism about the currency. Despite the global bond selloff that made foreign investors pull out $1.3 billion from Indian bond market in May, the rupee has remained stable.
While the NDF rates did not predict a rise of the rupee, the fall forecasted by the NDF rates was a modest 1% amid the global bond rout in May. During the month, the Indian rupee had depreciated by a a mild 0.25%.
“The RBI is able to contain the rupee in a narrow range. So, the rupee is not going to depreciate very fast,” said Jamal Mecklai, CEO of Mecklai Financial Services.
Currency traders said that the biggest driver of the confidence is the forex reserves along with improvement in the country’s balance of payments. Further, repeated assurances by RBI governor Raghuram Rajan have also allayed fears. “The Greece crisis will result in an initial burst of volatility. Foreign exchange buffers are fairly reasonable,” Rajan had said earlier this month.
In the past, the dollar/rupee NDF rates had predicted the most bearish levels for the rupee and, many a times, have also been one of the factors in pulling the rupee down in the onshore market. A case in point is the period of May-August 2013 when NDF rates predicted the rupee’s fall to 70/$ in three months. The onshore rupee hit an all-time low of 68.85/$ in August.