Rupee firm on FII inflows

MONEY MARKET ROUND-UP

The rupee extended Friday's gains on persistent dollar sales by foreign institutional investors into the local stock market as reflected by the rise in key indices today.

Rupee ended at 40.3675 per $1, stronger compared with 40.4200 Friday.

The Sensex and the Nifty ended at record highs today for the third straight session, closing 0.20 per cent up.

Between July 1 and 13, foreign funds have already bought shares worth $2.67, almost twice of what they invested June.

Such inflows are expected to continue as the Prime Minister's Economic Advisory Council today said there should be no restrictions on inflows into the equity market.

The panel also projected the Indian economy to grow at 9 per cent in 2007-08 (Apr-Mar) on the back of strong growth in industrial and services sectors.

"With the growth in the Indian economy and the huge inflow of dollars, I expect rupee to appreciate further in a couple of years. A controlled headline inflation will also support a rise in rupee," said Hari Dev Khosla, treasury official, TTML Maharashtra.

The weak dollar overseas and the absence of major demand also helped the rupee touch an intra-day high of 40.30 per $1.

The greenback was weighed down against major rivals because of the strong decline in the US retail sales data for June.

However, intervention by the RBI around 40.31-40.32 per $1 via state-run banks led the rupee to give up some of its gains.

Some oil-related dollar demand also held the rupee from rising significantly, dealers said.

FORWARD MARKET
The rupee premiums ended down today as the easy liquidity situation continued on banks' forward dollar sales.

The one-year premium ended at 1.85 per cent annualised compared with 1.92 per cent on Friday.

The one-month forward tenure ended at a discount of 1.39 per cent, compared with 0.97 per cent Friday.

"Government has announced auctions of Rs 18000 crore through market stabilisation schemes and treasury bills to absorb liquidity, but it may not be enough to hold premiums from moving down," said a dealer with a private bank.

On Wednesday, the RBI will sell Rs 5000 crore of 6.65%, 2009 gilt under its Market Stabilisation Scheme.

In addition, Rs 4000 crore will move out on Friday as payments of the 91- and 364-day treasury.