Indian rupee strengthened against major rivals helped by foreign fund inflows; however major gains were capped as hopes of a rate cut by the central bank faded after consumer price inflation showed a spike and factory output rose more than expected.
India's annual consumer price inflation (CPI) accelerated to 10.91% in Feb'13, as compared to 10.79% in the previous month of Jan'13, government data showed on Tuesday. Retail inflation moved up for the fifth consecutive month, remaining in the double-digit for third month in a row - on account of higher prices of vegetables, edible oil, cereals and protein-based
items.
The data for wholesale price index (WPI) based inflation is expected on Thursday. The WPI figures for January stood at 6.62%, much higher than RBI's comfort level of 5-6%. India's industrial production inched up by 2.4% in January mainly due to perk up in manufacturing output and enhanced power generation, government data showed on Tuesday.
The partially convertible rupee closed at 54.175/185 per dollar versus its previous close of 54.41/42. In the offshore non-deliverable forwards, the one-month contract was at 54.6, while the three month was at 55.2.
India's benchmark 10-year bond yield rises by 5bps to 7.89%, as accelerating consumer price inflation and higher-than-expected factory output data prompted traders to trim rate cut bets.
The one-year rate closed up by 2bps at 7.58% and the five-year OIS rate was unchanged at 7.22%. India's overnight cash rate was at 7.75/7.85% against Monday's close of 7.8/7.9%.
The dollar index closed a seesaw session with a marginal loss, while the British pound tumbled after dismal UK industrial production figures underlined fears of a triple-dip recession.
The dollar index which tracks greenback against major currencies moved to 82.585 on late Tuesday, off from 82.601 in late North American trading on Monday.
German Bunds rallied, after breaking key technical resistance as a sharp fall in UK manufacturing underpinned safe-haven debt markets while Italian bond prices rose, curtailing previous day sell-off, with investors' desire for higher yields trumping concerns about the country's uncertain political outlook.
