Re falls on sell-off by banks

MARKET ROUND-UP

The rupee fell, ending two days of gains, on speculation the central bank sold the Indian currency. The central bank may have sold the currency to boost cash with banks ahead of a debt sale, said L V Prasad, chief trader at IndusInd Bank. Banks, the biggest buyers of debt, have been depending on the central bank for more most part of the past month for funds.

"There was speculation the central bank sold the currency,'' Mumbai-based Prasad said. "That led to covering of some speculative positions. It may have been with the upcoming bond sale in mind.''

The rupee fell 0.1 per cent to 44.2388 against the dollar as of the 5 pm close in Mumbai.

The Reserve Bank of India (RBI) in December had raised amount of cash lenders must set aside as reserves, to 5.5 per cent of their deposits from 5 per cent, to combat inflation.

The move had drained Rs 13,500 crore with lenders, prompting them to borrow funds from the central bank through repurchase agreements, on most days since December 13.

The government will sell Rs 5,000 crore of the 7.94 per cent 14-year bonds at an auction on January 25 as part of its annual borrowing programme.

The rupee's decline in the cash market was tempered by expectations overseas funds will increase their equity purchases, as companies, including Bharti Airtel Ltd, the country's biggest mobile-phone operator, reported a jump in their third-quarter earnings.

Capital Inflows
"The rupee will rise further should the capital inflows continue,'' said Arun Kaul, treasurer at state-owned Punjab National Bank in New Delhi. He declined to give a forecast.

Global funds bought $8 billion of equities more than they sold in 2006, following a record net purchase of $10.7 billion in the previous year, according to data provided by the Securities and Exchange Board of India.

Refiners
The rupee still fell on speculation oil refiners will buy dollars as the local currency trades near a one-year high. Strength in the rupee makes imports less costly for companies such as Indian Oil Corporation, the country's biggest refiner.

The rupee has climbed 6 per cent from a three-year low in July, as crude oil prices dropped more than 30 per cent from a record, spurring demand for the US currency.

"Demand for dollars from a section of the market is persistent'' and halting the rupee's advance, said Tarini Vaidya, treasurer at Centurion Bank of Punjab based in Mumbai.

"The fall in crude prices is also resulting in dollar demand from refiners.''

The rupee ended at 44.19 yesterday after gaining to 44.185 last week, the highest close since January 31 last year.