The rupee rose, completing a second weekly gain, as a rally in local shares spurred optimism overseas investors will increase purchases of the nation’s assets to benefit from accelerating economic growth.
The currency appreciated as exchange data showed foreigners added $13.4 billion to holdings of Indian equities this year, 56 per cent more than a year earlier.
“The rupee has moved higher as capital inflows remain healthy, fueled by economic optimism and the positive sentiment in stocks,” said Jaiprakash Israni, a currency trader in Mumbai at state-owned Andhra Bank. “Further gains may be limited as some dollar demand is expected from importers.”
The rupee climbed 0.4 per cent this week to 46.47 per dollar as of 5 pm close in Mumbai. It gained 0.5 per cent last week. Financial markets in Mumbai will be closed tomorrow for a public holiday, according to the central bank.
Offshore forward contracts indicate the rupee will trade at 46.99 to the dollar in three months, compared with expectations for a level of 47.29 at the end of last week. Forwards are agreements to buy or sell assets at a set price and date. Non deliverable contracts are settled in dollars.
Bonds advance
Ten-year bonds gained for a third day, the longest winning streak in more than two months, before a report next week that economists forecast will show inflation slowed.
The yield on the notes dropped to a three-week low on speculation the central bank will temper the pace of interest-rate increases, after raising borrowing costs four times this year. The wholesale price index rose 9.6 per cent from a year earlier in August, following a 10 per cent gain in July, according to the median estimate of economists surveyed by Bloomberg. The data are due on September 14.
The yield on the 7.8 per cent note due May 2020 dropped three basis points to 7.91 per cent as of the 5 pm close in Mumbai, according to the central bank’s trading system. The price rose 0.18 per cent, or 18 paise per Rs 100 face amount, to Rs 99.25. Trading will be closed tomorrow for a holiday.
The central bank may raise its repurchase auction rate, at which it lends to banks, by 25 basis points to six per cent at its policy review on September 16, said Arya. A basis point is 0.01 percentage point.
The government raised Rs 11,000 crore by selling bonds maturing in 2015, 2022 and 2027 on Thursday. The auctions are part of the government’s record Rs 4.57 lakh crore borrowing plan for 2010-11.
The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, decreased. The rate, a fixed payment made to receive floating rates, fell three basis points to 6.1 per cent.
Call rates end up on weekend demand
Overnight cash rates rose on Thursday as banks tried to maintain excess balance to cover for the long weekend. Also, demand was higher on the last day of the reporting fortnight, dealers said.
The four-day inter-bank cash ended at 5.2-5.3 per cent, against its previous close of 4.9 to five per cent. The weighted average rate of the call money as per the Clearing Corp of India data was five per cent, compared with the previous session’s 4.71 per cent. The weighted average rate for collaterised borrowing and lending obligations was 4.5 per cent.
