SENSEX NIFTY
Aug 06, 2013, 06.29 PM IST | Source: Mecklai Financial

Mecklai graph of the day: Surging premia

With rising speculation of increase in repo rate by RBI in the upcoming policy meetings while US Federal bank remains accommodative on its policy, the premiums will continue to remain elevated, says Mecklai graph.

Mecklai graph of the day: Surging premia

After witnessing a free fall in rupee recently to a record low of 61.20 levels, the local currency has stabilized to some extent courtesy urgent steps taken by RBI and the Government (although with muted effect) to get rid of speculations from the market .Just as rupee treaded the path of depreciation, the premia’s continued to shrank reflecting the narrowing differential between the interest rates between the two countries as explained in the earlier graph sent in May.

In a key development now, the premiums for both 6-month and 12-month have gone up post Federal Reserve Bank’s relatively dovish stance on the monetary policy and in particular RBI’s recent strategy to hike Bank rate and Marginal Standing Facility by 200 bps to curb speculation in rupee, causing a spike in short term interest rates. Ever since the premia’s have shot up by 66 paise to 261 paise for 6-months and by 78 paise to 443.50 paise for 12-months with reference to the spot level. With rising speculation of increase in repo rate by RBI in the upcoming policy meetings while US Federal bank remains accommodative on its policy, the premiums will continue to remain elevated. On the flip side if currency stabilizes and RBI deems fit to withdraw its recent measures, it could act as a catalyst for premiums to come back to June Levels.

Below graph shows movement of 6-month and 12-month premia since April 2013

 

 

 

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