The rupee rose 30 paise on Tuesday against the dollar to close at 44.65, its highest gain in three weeks.The rise was partially fuelled by the selling of dollar by exporters and banks, coupled with mixed trends in other Asian currencies against the dollar.
The euro advanced on views that Ireland may pass its Budget for 2011, which is a pre-condition for the release of the first tranche of the bailout from the International Monetary Fund and the European Union.
In the previous session, it had gained 16 paise to close at 44.95 against the dollar, according to Bloomberg data.
Kaushik Basu, chief economic adviser to the finance ministry, said the Reserve Bank of India (RBI) might intervene in the foreign exchange markets if the rise in the rupee is sharp and volatile. RBI had reportedly intervened in the market in mid-October, when the rupee had touched 44.10 against the dollar.
Last week, the rupee had gained 1.6 per cent, its best weekly gain in two months. This is the sixth straight rise in the rupee against the US currency. On November 12, the Indian currency had appreciated to 44.31 against the dollar.
Dealers expect oil importers and refiners to come in to buy dollars around 44.80 in the domestic currency market.
Bonds advance
The 10-year bonds rose the most in more than a month on speculation a cash crunch in the banking system will ease as the central bank is scheduled to buy back Rs 12,000 crore ($2.7 billion) of debt this week.
Yields slipped from their highest level in 26 months after the finance ministry yesterday reduced the amount of notes it plans to sell this week to Rs 6,000 crore, from Rs 11,000 crore. Banks borrowed an average Rs 79,100 crore this quarter using the Reserve Bank of India's repurchase auction window, compared with Rs 23,900 crore in the previous three months, according to data compiled by Bloomberg.
“The cut in auction size and the repurchase of bonds are positive for bonds as this may ease liquidity pressures for now,” said A. Balasubramanian, who oversees the equivalent of $13.6 billion in debt as chief executive officer at Birla Sun Life Asset Management Co in Mumbai.
The yield on the 7.80 per cent note due May 2020 fell 11 basis points to 8.10 per cent, as of the 5 pm close in Mumbai, according to the central bank's trading system. The rate reached 8.21 per cent yesterday, the highest level for a benchmark 10-year note since October 2008. The price rose 0.72, or 72 paise per Rs 100 face amount, to Rs 98.04 on Tuesday.
India will buy back securities due in 2016, 2017, 2020 and 2022 bonds on December 9, the Reserve Bank said in an e-mailed statement yesterday.
Bond sale
It will offer Rs 3,000 crore of bonds maturing in 2017 and Rs 3,000 crore of debt due in 2027 on December 10. The cash crunch in the country's financial system may not last long, Kaushik Basu, chief economic adviser to India's finance ministry said on Tuesday.
The finance ministry raised its economic growth forecast for the current financial year, saying higher agricultural production will boost consumer demand in rural areas.
The South Asian economy may expand as much as 9.1 per cent in the year ending March 31, the ministry said in a report to parliament on Tuesday. It had projected a growth rate of 8.25 per cent to 8.75 per cent in February.
Call rate ends firm
The interbank call money rate ended firm above Reserve Bank of India’s (RBI's) repo rate of 6.25 per cent, as liquidity stayed tight and demand for funds strong, dealers said.
The one-day call money rate settled at 6.70-6.75 per cent against 6.80-6.85 per cent on Monday.
“It is the start of the fortnight. So demand is strong and fears that liquidity would tighten more from next week onwards is not helping things,” said a dealer with a large state-owned bank.
Companies will pay the third installment of advance tax from next week, which will further strain the liquidity situation, traders fear. The RBI has allowed the banks to dip into their SLR holdings up to 23 per cent of deposits till January 28, while borrowing from the central bank's repo auction.
The mandatory SLR holding is 25 peer cent of deposits.
The tight liquidity can be gauged from the fact that on Tuesday banks borrowed Rs 72,000 crore through first round of RBI repo auction. Results of the second round were yet to be received at the time of writing this report.
