Rupee gains the most in 3 weeks

The rupee strengthened the most in three weeks on speculation that a rebound in the benchmark stock index would encourage overseas funds to buy local equities.

The local currency reversed losses after earlier touching its lowest level since November, as the Bombay Stock Exchange’s Sensitive Index snapped a two-day drop. Exporters also probably sold dollars to benefit from the local currency’s weakness, said Sudarshan Bhatt, chief foreign-exchange trader at state-owned Corporation Bank.

“The recovery in stocks provided support,” Mumbai-based Bhatt said. “Some investors may have thought the rupee had weakened too fast.”

The rupee advanced 0.2 per cent to 45.68 per dollar at the close in Mumbai, according to data compiled by Bloomberg. It reached 46.09, the weakest since November 30.

Investors based abroad reduced holdings of local shares by $1.4 billion this month, the most since January, according to exchange data. The Sensex rose 1.2 per cent on Monday, paring its decline this month to 10.2 per cent.

Offshore forwards indicate the rupee would trade at 46.04 to the dollar in three months, compared with expectations for a rate of 46.09 on August 18. Local markets were closed for a holiday on August 19. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

BONDS CHANGE LITTLE
India’s 10-year bonds were little changed, with the benchmark yield staying near a one-week low, on speculation the central bank will halt interest-rate increases amid concern the global economic recovery is stalling.

Reserve Bank of India Deputy Governor Subir Gokarn, on Thursday, said international economic prospects appeared more pessimistic than a month earlier. The bank raised borrowing costs 11 times since the start of 2010 to cool inflation. Japan’s exports fell faster in July and Malaysia’s economy grew the least since 2009’s last quarter, reports showed last week.

The yield on the 7.8 per cent bonds due April 2021 rose one basis point, or 0.01 percentage point, to 8.27 percent at the close in Mumbai, according to the central bank’s trading system. It closed at 8.26 per cent on Thursday, the lowest level since August 11. The market was shut on Friday for a local holiday. The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, fell as traders pared bets for further rate increases.

CALL RATE STABLE
The call rate ended stable on the overnight call money market on Monday. The rate ended settled the day at its previous closing level of 8.05 per cent. It moved in a range of 8.10 per cent and 7.75 per cent.