The rupee rose to the highest level in almost three weeks, reversing an earlier decline, on speculation international investors would boost purchases of the nation’s bonds for their relatively high yields.
“Capital inflows will rise as the bond-purchase window for foreign investors shuts soon,” said Vikas Babu, a trader at state-run Andhra Bank in Mumbai. “Inflows will be healthy unless the situation in Europe deteriorates dramatically.”
The rupee advanced 0.4 per cent to 52.515 a dollar in Mumbai, according to data compiled by Bloomberg, after falling as much as 0.3 per cent earlier. It touched 52.4950 a dollar, the strongest level since December 21. The currency slid 16 per cent in 2011.
The currency weakened earlier after separate reports on January 6 showed that European confidence in the economic outlook fell to the lowest in more than two years and German factory orders plunged the most in three years.
Bonds gain
10-year bonds gained for a third day, pushing yields to a five-month low, on speculation the central bank will start easing monetary policy as growth and inflation slow.
Benchmark 10-year yields, which rose 65 basis points last year as the RBI boosted its repurchase rate seven times, have declined 37 basis points in 2012. The central bank may cut the amount of cash lenders must set aside as reserves by 50 basis points from 6 percent on January. 24 and then follow up with a reduction in borrowing costs in the weeks after that, according to J. Moses Harding, an executive vice-president at IndusInd Bank Ltd here.
Call rates
Call rate eased on the overnight call money market due to lack of demand from borrowing banks. The call money rate finished lower at 8.68 per cent from last Friday's close of 8.75 per cent.
It moved in a range of 8.75 per cent and 8.55 per cent.