Rupee at 5-month high on risk sentiment, fiscal hopes

The rupee rose to a five-month high on Friday, helping it gain the most in 13 quarters, as global risk sentiment improved, and the government stuck to its original borrowing plan, showing further signs of fiscal discipline.

The government said after trading hours on Thursday it will stick to its scheduled 2 trillion rupees borrowing plan for October-March and will not borrow more via bonds.

While the market was expecting the government to stick to its borrowing plan, a Reuters poll showed economists expecting 500 billion rupees of extra bond sales this fiscal.

Global investors have been wary about the rupee, primarily due to the country's twin deficits - fiscal and current account, with ratings agencies threatening a downgrade to 'junk' status.

Thus, the government's recent measures to keep the fiscal deficit to a minimum, by raising subsidised fuel prices and keeping spending in check has been received well by investors.

The rupee's gains were further aided by a strong global risk sentiment after Spain unveiled a crisis budget, which many saw as a precursor to the country seeking a bailout.

"There has been an absolute change of sentiment for the rupee. The outlook looks positive on hopes of more reforms and capital inflows," said K.N. Dey, director at Basix Forex & Financial Solutions, an advisory firm.

"I expect the rupee to gain to 51.50 to the dollar by end-October or November."

The partially convertible rupee rose to 52.495, a level not seen since May 1. It ended at 52.85/86, up from Thursday's close of 53.01/02.

In the process, the rupee has notched up a fourth successive week of gains and its best quarter since June 2009.

It is also the rupee's biggest monthly gain since January, rising 5.1 percent, in a month where the government unveiled a raft of reforms including opening up multibrand retail and aviation to foreign investors.

That has been further validated as long positions in the rupee climbed to their largest level since early February, a survey of 11 analysts showed on Thursday, as investors hailed the Indian government's fast-tracked fiscal and economic reforms.

USD/INR 1-month non-deliverable forwards were last trading at 53.12.

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 53.07 with a total traded volume of around $5.9 billion.