The rupee closed at the highest level in more than two weeks as stock gains fueled optimism that risk aversion would wane and overseas funds would return to buy emerging-market assets.
The currency strengthened for a second day after foreign funds bought more Indian shares than they sold in the five-day period through January 30, following three weeks of net sales. The MSCI Asia Pacific Index of shares advanced 1.7 per cent and the Bombay Stock Exchange Sensitive Index rose 0.6 per cent.
“The rupee is stronger as expected since global stock markets are reflecting an improvement in investor confidence,” said Amit Garg, a currency trader at state-owned Allahabad Bank in Mumbai.
The rupee closed at 48.81 a dollar, the highest since January 19, versus 48.825 yesterday, according to data.
The Indian currency may rise to 48.55 this week, according to Garg. The median estimate of 25 strategists and economists surveyed is for the rupee to rise to 47.90 by the end of the year.
Offshore contracts indicate traders bet the rupee will trade at 48.94 to the dollar in a month, compared with expectations for 48.96 yesterday.
Bonds climb
Bonds fell, pushing yields to the highest level in almost two months, on concern the government will increase debt sales as it steps up spending.
The price of the most-traded security maturing in 2018 dropped for a seventh day, its worst run in almost seven months, on speculation the gap between expenditure and income will widen, forcing the government to borrow more than planned to bridge the shortfall. India has announced two fiscal stimulus packages to spur growth in Asia’s third-largest economy.
The yield on the 8.24 percent note due April 2018 rose 12 basis points to 6.49 percent at the 5:30 p.m. close in Mumbai, according to the central bank’s trading system.
