The rupee surged to its highest level in more than a month on Tuesday, on the back of a sharp rally in shares, dollar sales by exporters and foreign inflows into government debt.
The market also appeared to take comfort from a reiteration by the finance ministry of Moodys’ decision in December to upgrade the short-term ceiling on Indian foreign currency bank deposits to P-3 from NP.
The rupee closed at 51.70/71 to the dollar, its strongest since December 8, and 1.5 per cent higher than Monday’s close of 52.50/51.
It was the currency’s biggest intraday gain since December 16.
“It would be a prudent case for the central bank to buy dollars after the rupee strengthens beyond 52,” said J Moses Harding, head of asset-liabilities committee at IndusInd Bank. “They have been selling dollars, and should be concerned with excessive volatility on the appreciation side as well.”
Bonds gain
10-year bonds declined on speculation yields near a five-month low will deter investors.
Benchmark yields have declined 34 basis points this month on speculation the central bank will ease its monetary policy stance when it meets on January 24 to support economic growth. “The fall in debt yields in the past few days has been drastic and unexpected, and investors are probably paring their holdings,” said Roy Paul, deputy general manager of treasury at Federal Bank Ltd.
The yield on the 8.79 per cent bonds due November 2021 rose three basis points, or 0.03 percentage point, to 8.23 per cent here, according to the central bank’s trading system.
Call rate eases
The call rate eased further on the overnight call money market here on Tuesday due to lack of demand and ample liquidity in banking system. The 8.79 per centmaturing in 2021, fell back to Rs 103.72 from Monday's close of Rs 103.90, while its yield moved up to 8.23 per cent from 8.20 per cent.
