RBI to buy $ to shield India Inc, says report

India is stepping up purchases of US dollars after a 5 per cent gain in the rupee in six months eroded corporate profits and threatened to slow the economy.

The central bank bought about $1.5 billion in the past seven days as the rupee reached a one-year high, according to estimates by JPMorgan Chase & Co. That's almost as much as the $1.8 billion the country bought in December, the last month for which data is available.

The Reserve Bank of India wants to curb the currency's gains to boost Indian exports and stoke economic growth, the fastest in the world after China. Infosys Technologies, India's second-biggest software company, last month said the rupee's appreciation squeezed profit margins 2 percentage points in the quarter ended December 31.

"The central bank needs to protect exports while reining in imports, so the trade deficit doesn't get wider,'' said Nizam Idris, a Singapore-based currency strategist at UBS AG.

The rupee is the eighth-best-performing currency among 70 against the dollar over six months as foreign investors bought to purchase shares and to expand factories. It rose as high as 44.025 per dollar on February 9, before closing the week little changed at 44.136. The rupee traded at 44.143 at 1:42 pm in Mumbai as the central bank again sold its own currency, said Rohan Lasrado, a trader at HDFC Bank Ltd., the nation's third-biggest lender, in Mumbai.

The currency may rise another 1 per cent to 43.60 by year-end, according to the median forecast of 20 analysts surveyed by Bloomberg. Nizam said the rupee may climb beyond 44 by year-end because the Reserve Bank can only slow, not halt, the currency's appreciation.

Central bank foreign-exchange reserves rose about $2.5 billion in January to a record $180 billion, an indication the country bought dollars. Spokeswoman Alpana Killawala declined to comment on more recent currency transactions.

The government wants to restrain rupee gains to boost exports and narrow a current-account deficit that widened to $11.7 billion in the six months through September 30 from $7.2 billion a year earlier.

The stronger currency has also made Infosys Technologies less competitive with rivals such as International Business Machines. Satyam Computer, the fourth-biggest software services exporter, cut its full-year sales forecast because of the rupee's gains.

The central bank forecasts India's economy will grow 9.2 per cent in the year ended March 31. China grew 10.7 percent in 2006.

Direct investment in India by companies including Japan's Suzuki Motor Corp. and Luxembourg's Arcelor Mittal, the world's biggest steelmaker, has pushed the rupee higher. Suzuki controls India's biggest carmaker, New Delhi-based Maruti Udyog. The government predicts foreign direct investment will almost double to $12 billion in the year ended March 31.

The interest among global money managers in India has been spurred in the past month by Standard & Poor's decision to award India an investment-grade rating.