Rupee hits five-week high on FII inflow hopes

MONEY MARKET ROUND-UP

The rupee rose to the highest in more than five weeks On Tuesday on speculation that measures taken by the government and the Reserve Bank of India (RBI) to bolster the economy will encourage overseas investors to shift more money to the country.

The rupee rose 0.3 per cent to 47.91 to a dollar at the 5 pm close in Mumbai. This is the highest closing since November 10. Nine of the 10 most-traded Asian currencies outside Japan gained On Tuesday.

The currency climbed for a second day after Economic Affairs Secretary Ashok Chawla said yesterday the government will take additional steps to support Asia’s third-largest economy as it faces a deeper-than-expected slump. RBI has slashed interest rates three times this quarter to boost growth.

“The currency market is expecting some dollar inflows On Tuesday and traders seem to be positioning themselves for that,” said Agam Gupta, head of trading at Standard Chartered’s Indian unit in Mumbai. “The rupee may gain further from here.”

The Indian currency may rise to 47.70 in the coming days, Gupta said.

The rupee has rebounded 5.8 per cent from a record low of 50.615 touched on December 2. The currency’s 18 per cent loss this year is still the biggest since 1991, when a balance of payments crisis forced the South Asian nation to pawn its gold with the International Monetary Fund to pay for imports.

The Indian currency slid this year as the global financial crisis spurred investors to pull money out of the country, Minister of State for Finance Pawan Kumar Bansal said On Tuesday. It also fell as the dollar strengthened against other currencies and as India paid more for its oil imports, he said in the lower house of Parliament in New Delhi.

The country has taken measures to attract investment and stem currency losses, allowing domestic companies to borrow more abroad and introducing a special facility to help refiners raise foreign currency to pay for crude oil imports, Bansal said. In addition, the nation has allowed banks to pay higher interest rates on foreign-currency deposits to attract capital inflows, he said.

Overseas investors bought Indian shares worth an average $42 million a day more than they sold this month compared with net daily sales of $46 million and $186 million respectively in November and October, according to data provided by the Securities and Exchange Board of India.
 

INCHING UP
Currency per dollar	Jan 02 , ‘08	Dec 16, ‘08	% change
Korean won	936.95	1349.67	-44.05
Pakistani rupee	61.32	81.18	-32.38
Indian rupee	39.44	47.91	-21.49
Indonesian rupiah	9386.00	11108.00	-18.35
Thai baht	29.75	34.78	-16.91
Malaysian ringgit	3.31	3.56	-7.44
Singapore dollar	1.44	1.48	-2.63
Taiwan dollar	32.45	33.00	-1.70
Hong kong dollar	7.81	7.75	0.79
Japanese yen	109.66	90.02	17.91
Source : Bloomberg

The Bombay Stock Exchange Sensitive Index, gained 1.5 per cent On Tuesday, adding to yesterday’s gains.

The rupee also strengthened as offshore forward contracts showed traders scaled back bets for how far the currency will weaken in the next month. Non-deliverable forwards (NDF) contracts show the currency will trade at 48.38 a month from now, compared with expectations for 48.44 yesterday.

Forwards are agreements in which assets are bought and sold at current prices for future delivery. Indian rupee forwards traded overseas are non-deliverable, meaning they are settled in dollars rather than the local currency.

G-sec yield dips below 6%
The 10-year government bonds rose On Tuesday, pushing yields below 6 per cent for the first time in more than four years on speculation that the central bank will lower borrowing costs as economic growth and inflation slow.

Benchmark notes gained for a seventh day, the longest winning streak in more than three months, after government reports last week showed India’s industrial production fell for the first time since 1993 and the inflation rate dropped to a seven-month low. Bonds also gained on speculation the US The yield on the 8.24 per cent note due April 2018 fell 18 basis points to 5.99 per cent at the 5:30 pm close in Mumbai, the lowest since September 2004, according to the central bank’s trading system. The price climbed 1.40 per cent to Rs 115.95. A basis point is 0.01 percentage point.

Yields on debt due 2018 have tumbled from a seven-year high in five months. They reached 9.55 per cent, the highest since 2001, in July. Ten-year yields may decline to as low as 5.5 per cent, Raghavan said.

Federal Reserve will cut its benchmark rate to a record low On Tuesday, adding pressure on central banks globally to reduce interest rates.

“The party may continue for some more time in the bond market because most factors are supporting buyers,” said Srinivasa Raghavan, the head of treasury at IDBI Gilts in Mumbai, a primary dealer that underwrites government debt sales.