Rupee at one-week high on foreign fund inflows

The rupee touched a one-week high after foreign funds boosted holdings of the nation’s shares to take advantage of the economic growth outlook in Asia’s third-largest economy.

Overseas investors bought $283 million more Indian stocks than they sold in the first two days of this week, boosting net purchases this year to $1.2 billion, according to exchange data. The MSCI Asia-Pacific Index of regional shares rose 0.9 percent, while the Bombay Stock Exchange’s Sensitive Index advanced for a third day.

“There is strong inflow momentum coming into the equity market,” said Mirza Baig, a Singapore-based currency strategist at Deutsche Bank AG, Germany’s largest bank. “I am positive on the rupee. In an environment of high risk appetite, the rupee can extend its gains against the dollar to beyond the 44 level” in three months, he said.

The rupee was little changed at 44.3163 per dollar as of 9.38 am in Mumbai, according to data compiled by Bloomberg. It touched 44.2250 earlier, the strongest level since April 13. The currency has climbed 0.6 per cent this month.

India’s economy may expand 8.5 per cent in the financial year that began April 1, from 8.6 per cent last year, Chakravarthy Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, forecast on April 20.

Offshore forwards indicate the rupee would trade at 45.05 to the dollar in three months, compared with expectations of 45.12 on Wednesday. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

Bonds drop

Eleven-year bonds declined for a second day on speculation the central bank will boost borrowing costs for the third time this year to tackle inflation.

The wholesale price index rose 8.98 per cent in March from a year earlier, compared with 8.31 per cent in February, according to official data. The Reserve Bank of India has lifted its benchmark rate by two percentage points to 6.75 per cent since the beginning of last year. The next review is due May 3.

“Inflation is a serious concern and that’s reducing appetite for bonds,” said Nirav Dalal, the Mumbai-based head of debt capital markets at Yes Bank Ltd. “A lot will now depend on the extent of rate action at the next meeting.”

The yield on the 8.08 per cent bond due August 2022, the most-traded government security, rose one basis point to 8.27 per cent as of 9.58 am in Mumbai, according to the central bank’s trading system. The rate is the highest since the debt was issued in August 2007. A basis point is 0.01 percentage point.

The government will auction Rs 120 billion ($2.7 billion) of bonds due in 2018, 2021 and 2040 today. India will also sell Rs 60 billion of 49-day cash management bills today, the Reserve Bank of India said in an e-mailed statement yesterday.

Call rate recovers
Call rates edged up to end at 6.20 per cent at the overnight call money market on Thursday due to fresh demand from borrowing banks. The overnight call money rate finished slightly higher at 6.20 per cent from overnight closing level of 6.15 per cent. It moved in a range of 6.25 per cent and 6.00 per cent.