Rupee snaps two-day fall on strong euro

The rupee strengthened, snapping a two-day loss, after a report showed US consumer spending rose faster than economists estimated, fueling optimism that global economic recovery was on track.

The currency climbed as a gauge that tracks the dollar sank to the lowest level since November 9, signaling that fewer investors favoured the relative safety of the greenback over emerging- market assets. Spending in the world’s biggest economy rose 0.7 per cent in December, beating November’s 0.3 per cent gain.

“The rupee is mildly stronger as the dollar has weakened broadly on positive economic data,” said Naveen Raghuvanshi, a Mumbai-based currency trader at Development Credit Bank. “For now, it may remain in a small range around current levels.”

The currency advanced 0.3 per cent to 45.7 a dollar as of the 5 pm close in Mumbai. It fell 2.6 per cent last month, the worst performance among Asian currencies after Thailand’s baht.

The Dollar Index, which tracks the greenback against six major trading partners, lost 1.6 per cent in January and touched a 12-week low of 77.2.

Offshore forwards indicate the rupee will trade at 46.5 to the dollar in three months, compared to expectations of 46.7 yesterday. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

11-year bonds dip as cash shortage reduces demand
India’s most-traded 11-year bonds fell after a cash squeeze in the banking system pushed up overnight rates, making it more expensive to buy debt with borrowed funds.

Yields increased to their highest level in a week as the call money rate, at which lenders borrow from each other, rose to seven per cent yesterday and was unchanged on Tuesday, compared to an average of 6.6 per cent last week. Inflation may touch seven per cent in the year to March, compared to a previous forecast of 5.5 per cent, because of a “widespread” rise in food prices, the Reserve Bank of India (RBI) said last week.

“The prevailing tight liquidity is reducing the demand for bonds,” said Roy Paul, deputy general manager at Federal Bank in Mumbai. “Accelerating inflation is also weighing on sentiment.”

The yield on the 8.13 per cent bond, due September 2022, rose one basis point to 8.18 per cent as of the 5 pm close in Mumbai. A basis point is 0.01 percentage point.

An index measuring wholesale prices of agricultural products gained 15.5 per cent in the week ended January 15 from a year earlier, the commerce ministry had said in a statement on January 27. The gauge increased 15.52 per cent the previous week.

On January 27, RBI Governor D Subbarao had said rising prices were the “dominant” concern for the monetary authority.

Manufacturing growth
India’s manufacturing growth accelerated, adding to the case for the central bank to extend Asia’s fastest interest-rate increases in the past year to curb inflation.

The Purchasing Managers’ Index rose to 56.8 in January from 56.7 in December, HSBC Holdings and Markit Economics said. A reading above 50 indicates expansion.