The rupee depreciated the most in more than six weeks on speculation refiners stepped up dollar buying to pay for costlier crude imports.
Oil for May delivery traded at $111.66 a barrel on the New York Mercantile Exchange, taking this year’s gains to 22 per cent. India imports almost 75 per cent of the crude it uses. The rupee strengthened 1.2 per cent last week, the most since the five-day period ended on December 3, as global investors bought $1.5 billion more Indian shares than they sold through April 7.
“Oil companies are in the market buying dollars, which is putting pressure on the rupee,” said Naveen Raghuvanshi, a Mumbai-based currency trader at Development Credit Bank Ltd. “The downtrend may not be sustained” because of capital inflows into the country, he said.
The rupee declined 0.7 per cent to 44.389 per dollar at the 5 pm close in Mumbai, according to data compiled by Bloomberg. Offshore forwards indicate the rupee will trade at 45.06 to the dollar in three months, compared with expectations of 44.74 at the end of last week. Forwards are agreements to buy or sell assets at a set price and date.
CALL RATE DROPS
Call rates ended higher at 6.80 per cent at the overnight call money market here on Monday owing to fresh buying support from borrowing banks. The overnight call money rate finished higher at 6.80 per cent from last Friday's closing level of 5.75 per cent. It moved in a range of 7.00 per cent and 6.60 per cent.
BOND YIELDS RISE
Eleven-year bonds dropped, pushing yields to a two month-high, as investors pared holdings on speculation rising prices will spur more rate increases. The wholesale price index probably rose 8.36 per cent in March from a year earlier, after gaining 8.31 per cent in February, according to a Bloomberg News survey before an April 15 government report. The central bank, which has boosted borrowing costs eight times since March 2010 to damp inflation, next meets on May 3.
“Investors are probably factoring in more rate actions and that’s reflected in debt yields,” said A Y Shedshale, a Mumbai-based deputy general manager at Bank of Maharashtra. The yield on the 8.13 per cent note due September 2022 jumped six basis points, or 0.06 percentage point, to 8.18 per cent at close in Mumbai, the highest level since February 11, according to the central bank’s trading system. The market will be closed tomorrow for a local holiday.
Reserve Bank of India Governor Duvvuri Subbarao predicted last month that inflation would reach 8 percent by March 31 this year, compared with a 7 percent estimate on January 25. A “monetary response is warranted” should inflation accelerate, central bank Deputy Governor Subir Gokarn said April 5.
