The rupee rose for the first time in five days as data showed equity purchases by foreign funds exceeded sales for a 10th straight day, the longest stretch since December 2007.
The currency strengthened on speculation that India’s economy, forecast by the central bank to grow at 6 per cent in the financial year that started April 1, will weather the global recession better than most other emerging markets. The Reserve Bank of India (RBI) cut interest rates yesterday for the third time this year to spur spending and investment.
“The rupee should be on a stable to appreciating trend from here on,” Rahul Chadha, Hong Kong-based head of Indian equities at Mirae Asset Global Investment, said. “India is one of the few trillion- dollar economies that will still grow at 5 per cent. Foreign investors will find India an attractive investment.” Mirae has about $40 billion in assets under management.
The rupee gained 0.2 per cent to 50.3525 a dollar at close in Mumbai. The currency has added 0.8 per cent this month, trimming losses from the past five quarters.
The Bombay Stock Exchange’s Sensex has rebounded 33 per cent from a three-year low reached on March 9. Overseas investors bought a net $1.1 billion of local shares this month, according to the Securities and Exchange Board of India.
RBI Governor D Subbarao cut the benchmark reverse-repurchase rate to 3.25 per cent from 3.5 per cent. He also cut the repurchase rate, or the overnight lending rate, by a quarter-percentage point to 4.75 per cent. Both benchmarks are now at their lowest since they were introduced in 2000.
The bank forecast Asia’s third-largest economy will grow at the slowest pace since 2003.
Offshore contracts indicate traders bet the rupee will trade at 50.64 to the dollar in a month, compared with expectations for 50.71 yesterday.
Bond yields at 6-wk low
The government’s 10-year bonds advanced for a sixth day, the longest winning streak in four months, after the central bank said it would buy existing debt.
Benchmark yields were at the lowest in six weeks after RBI said it would purchase Rs 6,000 crore ($1.2 billion) of securities in open-market operations tomorrow. The central bank’s decision to cut interest rates yesterday may help the government reduce borrowing costs as it plans record debt sales in the financial year that started April 1. Bonds erased the day’s gains after the drop in yields deterred investors before a debt sale on April 24.
“The fall in yields shows optimism that traders have for the near term,” according to Devendra Das, a trader at Development Credit Bank in Mumbai. “That got reversed because the debt sale also provides an opportunity to realign portfolio.”
The yield on the 6.05 per cent note due 2019 was little changed at 6.17 per cent at close in Mumbai, according to the central bank’s trading system. The yield fell as low as 6.03 per cent earlier, the least since March 2.
RBI plans to purchase five securities, it said without providing details. The bank in February resumed purchasing bonds through auctions to help the government complete its borrowing plan. India plans to raise a record Rs 3.62 lakh crore this financial year.
The central bank has sufficient room to take more monetary measures, Governor D Subbarao said.
The 10-year bond yield will fall to 6 per cent this month, the lowest since February, according to ICICI Securities.
Benchmark notes will extend a three-week rally as falling borrowing costs and rising cash at banks boost demand for debt, said Prasanna Ananthasubramaniam, an analyst at ICICI, a primary dealer that underwrites federal bond sales.
Call rate at 2-week low
Cash rates closed near a two-week low today as abundant cash with banks reduced demand and an RBI rate cut lowered the floor for overnight rates.
The overnight money ended at 3.25/35 per cent, below the previous close of 3.30/40 per cent. Call rates had fallen as low as 3.20 per cent intraday, a level last seen on April 9.
Traders said monetary easing by the central bank as well as its buyback of government securities, and redemption of two bonds in recent weeks has boosted cash.
“Whatever money that has come to the system in recent past is still prevailing, abating pressure on call rates,” said a dealer at a private bank who expects the rate to trade near 3.20-30 per cent levels this week.
Overnight money rates tend to stay near the reverse repo rate, at which the central bank absorbs money and which acts as the lower limit for cash rates.
The weighted average rate in the call money market was 3.29 per cent, while in collateralised borrowing and lending obligation (CBLO), it was 2.67 per cent, according to the Clearing Corp of India (CCIL).
Volume in the call money market was Rs 12,796 crore and in CBLOs, it was Rs 53,072 crore, CCIL data showed.
