Mumbai: The rupee advanced for a fifth day, extending a rally to the highest in almost nine years, as global funds more than tripled stock purchases this month.
The rupee is headed for the largest monthly gain since at least 1973 as overseas investors, betting on prospects for an increase in returns in Asia’s fourth-biggest economy, boost investment. The currency is the world’s third-best performer this year as the central bank refrained from stemming gains on concerns rupee sales will stoke inflation.
“Capital inflows remain strong combined with the dollar’s weak prospects,” said V. Ravi Kumar, director of treasury at Infrastructure Development Finance Corp. in Mumbai. “The authorities appear to favour a stronger rupee as that helps contain inflation.”
The rupee rose 0.4% to 40.7925 against the dollar as of 10:55 am in Mumbai, according to data compiled by Bloomberg. It climbed to 40.725, the highest since 22 May 1998. The currency may break 40 this quarter, Kumar said.
Overseas funds bought $1.1 billion (Rs4,487 crore) of Indian shares more than they sold this month, compared with a net purchase of $317 million in March, according to the Securities & Exchange Board of India. The benchmark Bombay Stock Exchange Sensitive Index, or Sensex, gained almost 10% this month.
Foreign direct investment almost tripled to $16 billion in the financial year ended 31 March, from the previous year, according to the commerce ministry.
The rupee has risen 8.5% this year as the central bank raised the overnight lending rate twice and also told banks to set aside more cash to curb lending.
Reserve Bank of India Governor Yaga Venugopal Reddy on 24 April vowed to contain inflation within 4.5% in the “medium- term,” stoking speculation he is more concerned about the rise in prices than with strength in the rupee.
The currency’s gains slowed export growth to less than 8% in the three months through February, compared with 33.6% in November. The central bank, which bought a record $11.9 billion in dollars in February, may have slowed purchases in the following months, foreign-exchange reserves data suggest.
— With reporting by Anil Varma in Mumbai