"The spot rupee will rule in the 42.45 level. Forwards dollars will soften with the six-month annualised cover at 6.95 per cent thereabouts from the current level of 7.34 per cent,'' said a dealer. The RBI on Monday cut the repo rate to 6 per cent, bank rate to 8 per cent and CRR to 10.5 per cent.The Reserve Bank move, coming close on the heels of the Union Budget presented by finance minister Yashwant Sinha on Saturday, was however seen by senior treasury officials as aimed more at domestic interest rates than the forex markets. "The Reserve Bank measures will bring down local interest rates, but I doubtwhether the spot-dollar or the forwards will soften by the same margins as the percentage point reductions in the repo rate, bank rate or CRR," said Janak Desai of Standard Chartered Bank.

Senior bankers ruled out any possibility of excess liquidity being used to arbitrage between the money and forex market triggering volatility in the forex market. "The rupee is unlikely to come under pressure as the RBI will not allow banks to take advantage of the excess liquidity to play in the forex market. The August 1998 measures to curb volatility are still in vogue," said a forex dealer.

"All indications are towards a lower interest rate regime for exporters... this will boost incremental exports," Commerzbank's treasury head K Harihar added. Among the more important southward corrections will be the one in the export refinance facility to banks to 8 per cent as this at the bank rate.The rupee had weakened last Wednesday by 13 paise to 42.57/58 against the dollar, but gained to the 42.49 level today setting asidefear of a fresh downslide. Forex dealers and brokers were of the view that while the forwards may come down from current levels, it is highly unlikely that the benchmark six-month annualised cover will touch 6.50 per cent levels."The Reserve Bank will keep the six-month annualised attractive enough at slightly less than 7 per cent...this will make it attractive enough for exporters to sell dollars forwards and cool the spot rupee. I also expect the Reserve Bank to buy spot-dollars if the rupee gains to 42.40/42.43 levels. Such a move will help the Reserve Bank shore up its forex reserves too,'' said a dealer.

Potential gains in the spot and forward rupee is, however, not seen making foreign currency pre- and post-shipment credit attractive for exporters. "It is early days yet...it is still attractive for exporters to take rupee export credit, unless of course premiums come off by a huge margin,'' dealers said.