Rupee snaps 2-day advance

The rupee strengthened for a third day on speculation foreign funds would step up purchases of the nation’s assets after the central bank signalled it may cut borrowing costs.

Foreign investors boosted holdings of Indian shares by $54 million in the first three days of this year, as Reserve Bank of India Deputy Governor Subir Gokarn said the current cycle of monetary tightening had “peaked.” The BSE India Sensitive Index of shares has gained 3.2 per cent in January.

The rupee appreciated 0.4 per cent to 52.78 per dollar here, after advancing 0.6 per cent in the last two days, according to data compiled by Bloomberg. It tumbled 16 per cent last year, more than triple the loss of the next worst- performer among Asia’s 10 most-used currencies, and reached a record low of 54.3 on December 15.

Three-month offshore forwards for the rupee traded at 53.79 to the dollar, compared with 54.16 yesterday. Forwards are agreements to buy or sell assets at a set price and date. Non- deliverable contracts are settled in dollars.

Bonds gain
10-year bonds gained, pushing yields to the lowest level in two weeks, on speculation the central bank would cut interest rates to support a slowing economy.

Wholesale prices rose 9.11 per cent in November from a year earlier, the slowest pace in a year. The country’s factory output shrank 5.1 per cent in October from a year earlier, government data showed last month. “Investors are bullish on bonds, as more and more people are getting convinced about the possibility of a rate cut,” said Paresh Nayar, the Mumbai-based head of money-market and currency trading at FirstRand Ltd.

Call rate stable
The overnight call rate finished stable at its previous closing level of 8.50 per cent. It moved in a range of 8.70 per cent to 8.45 per cent.