Re gains on likely exporter demand

MARKET ROUND-UP

The rupee gained a second day on speculation exporters will buy the currency after it fell last week to the lowest this month.

A weaker rupee helps exporters such as Infosys Technologies, the country's second-biggest software maker, when they convert overseas earnings. Some exporters may sell dollars to buy one-year forward contracts on the currency which are trading at a premium to the current price.

"With a good premium in the forwards market, exporters may find it attractive to sell dollars now,'' said M A Sardesai, general manager of treasury at state-owned Bank of Maharashtra in Mumbai. "The rupee has been trading in a tight range in the past few days. The pressure is for it to strengthen.''

The rupee, which rose as much as 0.2 per cent to 44.11 against the dollar, ended trading at 44.2025 versus 44.21 on February 23, according to data compiled by Bloomberg.

In the forwards market, investors who want to sell dollars for rupees a year from now receive 3.05 per cent more than the current exchange rate, Bloomberg data show. Forwards are agreements in which assets are traded at a fixed price for later delivery.

The local currency fell to the lowest in four weeks on February 23 as the benchmark Bombay Stock Exchange Sensitive Index, or Sensex, posted the worst week in seven months on concern central bank steps to rein in money supply growth and curb inflation will slow the expansion of Asia's fourth-biggest economy.

The rupee may fall to 44.35 this week, according to the median estimate of 11 traders surveyed by Bloomberg News.

The local currency pared the day's gains on speculation refiners including Indian Oil, the country's biggest, will buy dollars to settle their month-end import bills, said V Rajagopal, chief currency trader at Kotak Mahindra Bank Ltd. in Mumbai.

The currency failed to strengthen beyond 44 earlier this month on speculation the central bank sold it to prevent gains from squeezing the earnings of exporters. The rupee has traded between 44.025 and 44.2938 this month.

The country's foreign-exchange reserves rose $3.8 billion in the week ended Feb. 16, following a record $5 billion addition in the previous week, according to the central bank.

The accumulation suggests the central bank may have purchased dollars to keep the rupee from strengthening.