Yuan revalued, Re shoots up

Market sees higher FII inflow, rupee may rise further.

After months of intense pressure from its global trading partners, China today allowed a 2 per cent appreciation of its currency, ending a decade-old fixed peg to the US dollar.

China's central bank announced a mild appreciation of its renminbi, setting the peg at 8.11 to the dollar from the long-standing level of 8.28. It said the renminbi would now be pegged to a basket of currencies.

The revaluation of the renminbi led to an immediate appreciation of the Indian rupee, which moved up from 43.52 against the dollar to 43.15 within minutes of the announcement.

The rupee ended at 43.20, its highest against the dollar since 1999. The Indian unit was trading at 43.50 against the dollar before China's announcement. The Malaysian central bank also took the Chinese cue, by changing its currency from a fixed rate against the dollar to a managed float.

The government securities market reacted to the yuan revaluation and prices went up by 5/10 paise across maturities. The 10-year 7.38 per cent 2015 bond closed at 7.14 per cent against a close of 7.16 per cent on Wednesday.

The news was flashed after the close of the trading session of stock markets. Brokers said it would have a positive impact on the market tomorrow.

Andrew Holland, chief administrative officer and executive vice-president (research), DSP Merill Lynch, said, "The Yuan revaluation is definitely good news for India and the foreign flows will accelerate. The commodity market and old economy stocks will benefit from it. However, sentiments may dampen for IT stocks as the rupee may strengthen further."

Investment adviser UR Bhat said the inflows could be even more robust and foreign funds waiting in the wings might find India marginally more attractive compared with China.

Foreign exchange dealers believe that the rupee appreciation still has some more way to run. "The rupee may even breach the 43-to-the-dollar mark following a surge in dollar sales by panicking exporters," said a currency dealer.