Rupee rises on heavy foreign inflows

MARKET ROUND-UP

The rupee advanced for a second day on optimism global funds will increase purchases of the nation's stocks to benefit from record earnings.

Overseas fund managers bought more local equities than they sold in the seven days through January 24, the longest buying streak in more than two months, according to the Securities and Exchange Board of India. The benchmark stock index rose to a record on January 25, extending its gain to 44.7 per cent in the past 12 months.

"The rupee will get strengthened as the inflows are good,'' said P Paresh Kumar, general manager of treasury at state-owned Dena Bank in Mumbai. "And that is driven by a view that the rate of growth we are seeing will sustain.''

The rupee rose 0.1 per cent to 44.221 against the dollar as of the 5 pm close in Mumbai, from 44.2513 on January 25, according to data compiled by Bloomberg. The financial markets were closed on January 26 for a holiday. They are closed tomorrow also. Sun Pharmaceutical Industries, the country's biggest drugmaker by market value, today said third-quarter profit climbed 36 per cent. Steel Authority of India, the largest steelmaker, reported a more than double third-quarter net income.

The gains in the rupee were tempered by speculation the nation's refiners and other importers will buy more dollars to settle their month-end bills. Importers such as Indian Oil Corporation, the nation's largest refiner, may step up dollar purchases as the rupee is poised to gain for a sixth month. A gain in the rupee will allow importers to convert fewer rupees into foreign currency to pay for shipments.

"Dollar demand will rise this week and set the trend for the rupee,'' said Parthasarathi Mukherjee, treasurer at UTI Bank based in Mumbai. "The near-term bias for the rupee will be to decline.'' Asia's third-biggest oil user meets three-quarters of its energy needs from abroad.

The country's exports climbed 7.8 per cent to $9.9 billion in December from a year earlier, the commerce and industry ministry said on January 27. Imports climbed 31 per cent to $15.5 billion, boosted by an increase in oil purchases.

The central bank today said the economy faces the threat of accelerating inflation, suggesting it may raise borrowing costs to slow the price rise.

"Underlying inflationary pressures remain,'' the bank said today in a report released before the quarterly monetary policy statement that's due on January 31. "Preemptive monetary and fiscal measures along with the moderation in fuel prices could have helped to some extent in containing inflationary expectations.''

The RBI, which increased its overnight lending rate four times in 2006 to slow inflation, is scheduled to review its policy on January 31. Thirteen of 17 economists in a Bloomberg survey expect the central bank to raise its key lending rate by a quarter per cent to 7.5 per cent.

"I don't think the currency will be affected much by the interest rate decision, as it has been the case historically,'' Mukherjee said. "The rupee will move in a narrow band in response to the rate decision.''

The rupee still rose on speculation borrowing from abroad by lenders and companies will boost the supply of foreign exchange in the local currency market.

Bank of Baroda, the country's fifth-biggest lender by assets, plans to sell as much as $1.5 billion of medium-term notes abroad to finance expansion. Industrial Development Bank of India, a state-owned lender, plans to sell as much as $1 billion of bonds for a similar reason.