Rupee gains as banks sell dollars

MARKET ROUND-UP

India's rupee rose for a fifth day, the best run in more than a month, on speculation that lenders bought the currency as tax payments due last week reduced funds in the banking system.

Indian companies may have paid as much as Rs 400 billion rupees ($9.2 billion) in advance tax on March 15, according to estimates by traders surveyed by Bloomberg News. The rupee has gained 1.8 per cent during the past week to reach the strongest since August 3, 2005. It is the third-best performer among the 15 currencies in the Asia-Pacific region, during the period.

"The liquidity conditions and not the fundamentals are providing strength to the rupee at the moment,'' said Prabal Banerji, chief financial officer, Hinduja Group. "We didn't expect such a sharp appreciation of the rupee. We expected a continuous gradual appreciation,'' he added. The rupee gained 0.7 per cent to Rs 43.47 as of close at 5 p.m. in Mumbai, according to data compiled by Bloomberg. That was also the highest level today. The rally was tempered by speculation that the central bank will sell dollars to protect Indian exports from becoming uncompetitive. Exports account for about 10 per cent of Asia's fourth-largest economy.

The rupee yesterday rose the most in four months, making Indian goods and services less competitive abroad. The gain may slow exports and widen the nation's current-account deficit, which reached $6.9 billion in the three months ended Sept. 30, from $3.6 billion a year earlier, the central bank said.

"At some point the central bank will step in,'' said Tarini Vaidya, treasurer at Mumbai-based Centurion Bank of Punjab. He expressed surprise at the extent of the rupee's gains yesterday. The rupee may still advance on speculation that local companies will raise more funds from abroad to expand their capacities. "If you look at the kind of external borrowings Indian companies have lined up, it is across the board and for long- term expansion,'' said Manoj Rane, treasurer at the Mumbai unit of BNP Paribas SA, France's largest lender by market value.

"India's growth story remains strong and everyone wants a share of it. In the medium term, I expect the rupee to rise.'' Indian companies raised $9.4 billion from abroad in the six months between April and September 2006, compared with $4.5 billion in the previous year, the central bank said Jan. 31.

The economy may grow by 9.2 per cent in the fiscal year ending March 31, up from a 9 per cent gain during the previous year, according to the government's statistics office.