The rupee rose past 49 a dollar, to the highest level in a week on optimism European leaders would find a solution to contain the region’s debt crisis.
The currency extended its biggest gain since December after Greek Prime Minister George Papandreou won parliament backing yesterday for a property tax that would pave the way for further aid, while German Chancellor Angela Merkel said Europe’s largest economy is ready to offer assistance. On Wednesday’s performance is only a “short-term reprieve” for the markets, according to Sailesh K Jha, head of Asia strategy at Skandinaviska Enskilda Banken AB.
“There is some optimism after the positive news out of Europe,” Singapore-based Jha said. “However, there are still a lot of details to be worked out in terms of the European policy announcements, so over the next several weeks we will see pressure on equity markets pick up again and with that, we will also see the dollar strengthening against Asian currencies.”
The rupee strengthened 0.7 per cent to 48.7525 a dollar at the close in Mumbai, according to data compiled by Bloomberg. It earlier touched 48.6575, the highest level since September 21. The currency rose the most in almost 10 months yesterday, and is down 8.4 percent this quarter.
Offshore forwards indicate the rupee would trade at 49.43 to the dollar in three months, compared with expectations for a rate of 49.78 yesterday. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
BONDS DECLINE
Government bonds declined further on sustained selling pressure from banks and companies.
The 7.80 per cent government security maturing in 2021 dropped to Rs 96.47 from 96.5925 yesterday, while its yield moved up to 8.34 per cent from 8.32 per cent. The 7.83 per cent government security maturing in 2018 moved down to Rs 97.44 from Rs 97.4850, while its yield held steady at 8.34 per cent.
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The 8.13 per cent government security maturing in 2022 fell to Rs 98.08 from Rs 98.16, while its yield inched up to 8.40 per cent from 8.39 per cent. The 8.08 per cent government security maturing 2022 and the 8.28 per cent government security maturing in 2027 also quoted lower at Rs 97.75 and Rs 97.60, respectively.
CALL RATE RECOVERS
The call rate recovered to end at 8.30 per cent at the overnight call money market on Wednesday due to fresh buying support from borrowing banks. The overnight call money rate finished higher than yesterday's closing level of 8.25 per cent. It moved in a range of 8.30 per cent and 7.80 per cent.