Rupee retreats from 3-yr high

The rupee retreated from the highest level in almost three years on speculation of importers buying dollars to settle payments at the end of the month.

The currency snapped a two-day gain as the MSCI Asia- Pacific Index fell 0.9 per cent after Standard & Poor’s cut Greece’s credit rating, adding to concern Europe’s debt crisis is worsening. In the US, Republicans and Democrats continued to disagree on how to tackle the nation’s debt as an August 2 deadline to raise the borrowing ceiling looms.

“We are seeing the month-end demand for dollars from importers,” said R N Hirve, the Mumbai-based chief currency trader at state-owned Central Bank of India. “Concerns about the debt situation in the US and Europe are also affecting the rupee.” The rupee was little changed at 44.08 per dollar at the close in Mumbai after gaining 0.7 per cent over the last two days, according to data compiled by Bloomberg. It touched 43.8550 yesterday, the highest level since August 29, 2008. Offshore forwards indicate the rupee would trade at 44.50 in three months, compared with expectations of 44.44 yesterday. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

BOND YIELDS RISE
India’s 10-year bond yields rose to their highest level in 34 months after the central bank boosted interest rates this week for the fifth time in 2011 to dampen inflation.

The Reserve Bank of India raised the repurchase rate by 50 basis points to eight per cent on July 26, double the increase forecast by most economists in a Bloomberg survey. Finance Minister Pranab Mukherjee said yesterday he couldn’t say if the central bank has reached the end of the rate-rise cycle. “Bonds are likely to trade in a narrow range around current levels,” said Anoop Verma, a fixed-income trader at Development Credit Bank in Mumbai. “Investors are probably refraining from adding to their holdings after the rate increase as inflation is still a concern.”

The yield on the 7.8 per cent government debt due April 2021 rose two basis points, or 0.02 percentage point, to 8.47 per cent, the highest level since September 29, 2008, as of the close in Mumbai, according to central bank data.

Inflation has held above eight per cent every month since the beginning of 2010. Wholesale prices rose 9.44 per cent in June from a year earlier after climbing 9.06 per cent the previous month, according to the latest government data issued on July 14.

CALL RATE RECOVERS
The call rate ended lower at 8.00 per cent at the overnight call money market here on Thursday. The overnight call money rate finished lower at 8.00 per cent from yesterday's closing level of 8.08 per cent.