Rupee rises for the first time in a week

The rupee strengthened for the first time in a week on speculation that US and European policy makers would boost monetary stimulus to protect economic growth, supporting demand for emerging-market assets.

The currency pared gains after the Bombay Stock Exchange India Sensitive Index of local shares erased its advance. Federal Reserve chairman Ben S Bernanke said yesterday the US central bank can take further steps to sustain the recovery in the world’s largest economy. The European Central Bank would cut interest rates at a meeting tomorrow to shield the economies in the region from its debt crisis, according to 11 of 52 economists surveyed by Bloomberg. The others expect no change. The dollar index, which tracks the currency’s performance against six major trading partners, dropped for the first time in six days.

“The rupee trend today would be a short-term one, moving in line with the news out of the US and its impact on the dollar,” said Abhishek Goenka, Mumbai-based chief executive officer at consulting company India Forex Advisors. “However, problems across the global banking sector have begun to permeate into India and this would pressurise the rupee going ahead.”

The rupee strengthened 0.1 per cent to 49.3475 per dollar at the close in Mumbai, according to data compiled by Bloomberg.

Offshore forwards indicate the rupee would trade at 50 to the dollar in three months, compared with expectations for a rate of 50.05 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 bonds declined, pushing yields to the highest level since 2008, on concern that increasing government debt sales would damp demand for existing notes.

Finance minister Pranab Mukherjee had, yesterday, said the nation may find it hard to meet its budget-deficit target in the current fiscal year. The government plans to raise Rs 2.2 lakh crore by selling bonds in the six months ending March 31, more than the budgeted Rs 1.67 lakh crore, R Gopalan, secretary, department of economic affairs, said last week.

CALL RATE DECLINES
The call rate ended lower at 7.50 per cent on the overnight money market on Wednesday owing to lack of demand from borrowing banks. The overnight call rate closed lower than yesterday's closing level of 8.00 per cent. It moved in a range of 8.25 per cent and 7.30 per cent.