Forward premia slide as markets see dollar crunch despite crude oil mayhem

Even as the banking system is witnessing an increased rupee liquidity, the continued outgo of foreign portfolio investors (FPIs) from Indian assets has ensured a dollar shortage despite lower demand for oil-import bills.

On top of this, some Indian banks could be converting their rupee liquidity in dollar deposits, accentuating the demand for dollars and bringing down the forward premium for it.

The forward premium comes down when demand for the spot dollar is more than the future dollar. The three-month dollar premium was 4.81 per cent on April 8, it is now at 3.93 per cent.

So far in this calendar year, FPIs have withdrawn $17.38 billion from the Indian markets. Of this, $10.4 billion is in debt, and about $7 billion in equity.