Buoyant inflows, export data power rupee

RECAP

Buoyant inflows and positive export data helped the spot rupee extend its gains against the dollar and end the week at a 46-month high of 44.47/48.

With this, the rupee posted its highest weekly gain in more than six years even as the Reserve Bank of India (RBI) stayed away from the market.

On Thursday, the rupee had closed at 44.7400/7450. The rupee, which has appreciated by more than 2.5 per cent in the first three months of the calendar year 2004, last closed higher at 44.3700/3800 on May 26, 2000. RBI governor Y V Reddy said the rupee was being driven by market demand and supply factors. He said the rupee's movements were influenced by the global currency movements and the unit had been relatively stable.

The export data released on Thursday said exports in February recorded a rise of 34.9 per cent year-on-year against 8.7 per cent in January, despite the appreciation of the spot rupee. Imports, on the other hand, surged 44.5 per cent in February 2004 over the same month last year.

Forward premia continued to firm up, though marginally, supported by importer hedging and swaps by PSU banks.

The spot rupee started the week touching a three-year-and-eight-month high of 45.07/08 to a dollar on the back of huge inflows and an apparent lack of intervention by the central bank, said dealers. The forex market broke the barrier of 45.20 last week by closing at 45.16 in one of the trading sessions.

Bond markets, on the other hand, started the week with profit selling and reshuffling of portfolios from long- and medium-end to the medium to short term of maturity.

While most of the buying in the short term was a replacement for the 12.50 per cent 2004 paper maturing this week, value-based buying was also done as yield spread was attractive in the short end of the maturity.

The ten-year benchmark 7.37 per cent 2014 paper touched 5.15 per cent in the beginning of the week. The bond market, towards the later part, witnessed an extensive rally in the longer maturity 15- to 20-year papers as the RBI's auction calendar did not indicate much supply of long-dated papers.

Short-term papers remained stagnant as market players felt that there is abundant supply of papers at this end of the curve and yields in the short term are likely to go up.

Yield on the ten-year benchmark 7.37 per cent 2014 paper closed around 5.16 per cent on lacklustre movement in the medium-term maturity.

The RBI came out with a government borrowing programme for Rs 59,000 crore towards the central government's fund requirement and Rs 35,500 crore for the first quarter of the new fiscal year. In the first half of current fiscal year, the government borrowed Rs 80,000 crore.

The general sentiment was boosted by a lower-than-expected borrowing target for the next fiscal year and comments by the central bank head that he expected these borrowings to be smooth.

Bond traders said the market stabilisation plan could significantly suck out the liquidity from the system and this lifted the bond market sentiment this month.

The government will issue Rs 60,000 crore worth of securities under the market stabilisation scheme in the first half of the next fiscal year to drain the surplus cash created by strong foreign exchange inflows.