Rupee rises on lower current account deficit forecast

The euro hit a six-week high against the Japanese yen today

The rupee rose marginally on Friday, helped by the euro's gains and after a government panel forecast a lower current account deficit, but still posted a fall for the week as high global crude prices sparked demand for dollars.

Despite the unexpected fall seen in July wholesale price inflation data out this week, investors remain concerned the central bank will not cut interest rates at its mid-September policy review, while the government has yet to announce any growth-boosting measures.

A spike in global crude prices that sent Brent futures to three-month highs this week has exacerbated inflationary fears, while also raising concerns about India's current account deficit.

Investors thus appeared relieved when the prime minister's economic advisory council on Friday forecast the current account deficit would narrow to $67 billion or 3.6 pct of the GDP in 2012-13 compared to 4.2 percent in the previous year.

"The statement from the Economic Advisor of the government that the BOP shall have a surplus of about $4 billion at the end of the current fiscal is quite encouraging, and makes us to believe that the rupee is currently near the peak of its weakness," said Param Sarma, director and chief executive at NSP Treasury Risk Management Services.

The partially convertible rupee closed at 55.73/74 per dollar as per the SBI closing rate versus its previous close of 55.75/76.

It fell 0.8 percent on the week. Monday is a public holiday in India.

Onshore forward premiums fell, with a large petrochemical company seen receiving, dealers said. The 1-year was at 3.4225/4425 bps versus 3.47 bps at last close.

The euro hit a six-week high against the Japanese yen on Friday after comments from German Chancellor Angela Merkel the previous day strengthened expectations that action will be taken to stem Europe's debt crisis.

The one-month offshore non-deliverable forward contracts were trading at 56. 1 0, while the three-month was at 56.76.

In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange, all closed at around 55.80 with the total traded volume at around $3 . 5 billion.