Banks fuel rupee to one-year high

MARKET ROUND-UP

Rupee rose to the highest in a year on speculation lenders bought it to boost their reserves.

The central bank yesterday raised the rate at which it lends funds to banks to curb inflation fuelled by loan growth.

That prompted traders to sell dollars for rupees, which they need for lending amid record economic expansion. The dollar fell against 11 of the 15 most actively-traded Asia Pacific currencies today, according to Bloomberg data.

"There are no cash surpluses in the system so banks are trying to raise funds from all possible ways,'' said Anupam Mitra, a trader at UTI Bank in Mumbai. "They may have sold dollars today also as there is no demand for them.''

The rupee rose 0.2 per cent to 44.12 against the dollar as of the 5 pm close in Mumbai, according to data compiled by Bloomberg. Traded volume was less than a fifth of the average daily amount, according to Mitra, due to local council elections in Mumbai, the country's financial centre.

Governor Yaga Venugopal Reddy lifted the Reserve Bank of India's repurchase rate by a quarter percentage to 7.50 per cent, as predicted by 10 of 16 analysts surveyed by Bloomberg News.

The country's economy grew 9 per cent in the financial year through March 31, 2006, the fastest pace since the country's independence in 1947. The central bank also raised its growth forecast to as much as 9 per cent for this financial year, from an earlier prediction of about 8 per cent.

The bond markets were shut today because of local council elections in Mumbai, the financial centre of the country.

The Negotiated Dealing System, the central bank's bond trading platform, was closed. Bond deals done yesterday would be settled tomorrow instead of the usual settlement the next day, said RBI.

The Reserve Bank yesterday conducted two-day repurchase auction of securities.