Rupee gains on signs of stock rally to boost fund inflows

The rupee strengthened on optimism fund inflows would increase as overseas investors step up purchases of the nation’s assets to benefit from India’s economic growth.

Foreign funds bought $394 million more of the nation’s shares than they sold on June 21, boosting purchases for the year to $5.6 billion, according to data from the Securities and Exchange Board of India. Factory output grew 17.6 per cent in April after increasing 13.9 per cent in March, the government said on June 11, fueling a 4.8 per cent rally in the Bombay Stock Exchange’s Sensitive Index this month.

The rupee appreciated 0.1 per cent to 46.19 per dollar as of the 5 p.m. close in Mumbai. It rose as high as 46.125 earlier.

Offshore forward contracts indicated the rupee will trade at 46.64 to the dollar in three months, compared with expectations for a rate of 46.69 yesterday. Forwards are agreements to buy or sell assets at a set price and date. Non deliverable contracts are settled in dollars.

The South Asian nation’s economic growth accelerated to 8.6 per cent in the last quarter, from 6.5 per cent in the prior three months, a government report showed May 31.

Bonds decline for a third day
Ten-year bonds fell for a third day as the government’s top statistician, Pronab Sen, said the central bank may raise interest rates “anytime” after inflation unexpectedly accelerated last month.

Yields rose to the highest in almost a week on speculation that the government may scrap subsidies on petroleum products at a meeting of ministers this week, stoking inflation. The benchmark wholesale-price index advanced 10.16 per cent from a year earlier in May, after a 9.59 per cent gain the previous month.

The yield on the 7.80 per cent note due May 2020 rose three basis points to 7.60 per cent, the most since June 17, as of the 5:30 pm close in Mumbai, according to the central bank’s trading system. The price fell 0.18 per cent, or 18 paise per Rs 100 face amount, to Rs 101.37.

Core inflation, which excludes food and fuel, is becoming “worrisome,” Sen told reporters in New Delhi on Wednesday. Sen isn’t connected with the central bank, which sets the monetary policy.

The central bank’s next policy meeting is scheduled for July 27. The monetary authority last raised interest rates at its April 20 policy meeting, the second increase this year. Its benchmark reverse repurchase rate is 3.75 per cent and the repurchase rate is 5.25 per cent.

Call ends marginally down at 5.1%
Call money rate ended marginally down on Wednesday as demand for funds waned towards the last hour of trades on Wednesday, dealers said.

One-day call rate on Wednesday ended at 5.05-5.10 per cent compared with Tuesday’s close of 5.25-5.40 per cent.

“Demand for funds fell in the later trades. However, most deals were struck around 5.25 per cent levels only. Call rate may remain firm this week,” said a dealer with a private bank. Call rate on Wednesday hovered near the Reserve Bank of India’s (RBI’s) Repo Rate of 5.25 per cent due to liquidity tightness in the banking system.

Repo borrowing rises to highest in 21 months
Borrowing by banks from RBI in the one-day repo auction rose to Rs. 70,175 crore as banks faced some mismatch in cash positions as the cash went out of the system as companies paid advance income tax and towards payment of telecom licenses. The borrowing by banks in the repo is the highest since October 10, 2008.

Banks borrowed Rs. 64,735 crore from RBI yesterday. Though, banks are borrowing increased amounts from the RBI, it was not resulted in higher call money rates. The inter-bank call money rates slipped slightly to 5.30 per cent from 5.33 per cent yesterday, according to data from the Clearing Corp of India website.