Dollar buys, FII inflows take Re to 15-month high
The rupee on Monday hit a fresh 15-month high against the dollar. Dealers offered oil companies’ dollar buying and heavy inflow of funds from foreign institutional investors (FIIs) as reasons.
According to Bloomberg data, the rupee closed at 45.33 against the dollar, up 1.09 per cent than the Friday close of 45.77. It hit an intraday high of 45.28, the highest since September 10, 2009.
Though there was a buzz about the Reserve Bank of India’s (RBI’s) intervention in the market, but public sector bankers declined any such move from the central bank. “RBI has not intervened in the market. There was some dollar buying by oil companies and FII inflows. We expect the central bank to intervene in coming days if the rupee breaches the 45-mark,” said a senior executive of a public sector bank.
So far this year, FIIs have put in $3.72 billion in the Indian market. The central bank usually buys or sells dollar to prevent excessive volatility in the exchange rate.
In the wake of disappointing US jobs data, the dollar fell the most on Monday in six weeks. At the same time, most Asian currencies strengthened — the Australian dollar soared on the back of strong export numbers from China.
The onshore one-year dollar premium moved down to 115 points from around 131 points at the close of last year, indicating the rupee may depreciate at a slower pace than anticipated before. The six-month forward premium was at 2.55 per cent.
One-month offshore non-deliverable forward contracts ended at 45.35, marginally stronger compared to the onshore spot rate. In the currency futures market, the most traded near-month contracts on the National Stock Exchange was quoted at 45.38.
Bankers said the appreciation of the rupee came as a surprise. Earlier bankers expected the rupee to cross 45 in March, but now they see it breaching this level by January-end itself.
10-year bonds little changed on interest rate
India’s 10-year bond yields held near this month’s high on speculation the central bank will raise borrowing costs to slow inflation.
The Reserve Bank of India (RBI) will review benchmark interest rates at a quarterly meeting on January 29 after gains in an index of food articles compiled by the commerce ministry averaged 19.3 per cent last month, near the most since 1998. The central bank might absorb excess cash from the banking system to moderate inflation, Chakravarthy Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said.
“There is little appetite for bonds because the sword of monetary tightening is hanging over us,” said Anoop Verma, a bond trader at Development Credit Bank. “As a first step, I expect the cash reserve ratio to be increased.”
The yield on the 6.35 per cent bond due January 2020 was little changed at 7.66 per cent as of the 5:30 pm close in Mumbai, according to the central bank’s trading system. The price was Rs 90.985 per Rs 100 face amount.
The South Asian nation’s banking law requires lenders to hold at least 5 per cent of their deposits as cash reserves. The central bank has kept the benchmark reverse-repurchase rate unchanged at 3.25 per cent since April.
The cost of five-year interest rate swaps, derivative contracts used to guard against changes in borrowing costs, decreased. The rate, a fixed payment made to receive floating rates, fell to 6.88 per cent from 6.90 per cent at the end of last week.