Mumbai: The Indian rupee on Tuesday strengthened past 66-mark to close at 16-month high against the US dollar as local equity markets surged over 490 points after Bharatiya Janata Party’s landslide victory in Uttar Pradesh.
The rupee closed at 65.82 a dollar—a level last seen on 6 November 2015, up 1.2%, its biggest gain since 19 September 2013, from its previous close of 66.61. The rupee opened at 66.21 a dollar and touched a high of 65.78, a level last seen on 23 October 2015.
So far this year, the rupee has become the third-best performing currency in Asia after South Korean won and Taiwanese dollar. It has gained nearly 3.2% in this period.
On Saturday, the BJP won an unexpected 312 out of 403 seats in the assembly elections of India’s largest state, raising expectations of continued political stability, smooth implementation of a proposed goods and services tax and reforms in areas such as labour laws and land acquisition.
“The overall results are seen as an affirmation of the ruling party’s reform agenda, especially coming close on the heels of the demonetisation move. This also signals a strong momentum and improving popularity ahead of the general elections in 2019,” said DBS report in a note to its investors.
The benchmark Sensex index rose 1.71% or 496.40 points to closed at 29,442.63. So far this year, it has risen 11%.
Bond yield erased its intraday gains and closed little changed. Earlier, 10 year bond yield hit three week high to 6.923%—a level last seen on 22 February, after Wholesale Price Index (WPI) inflation accelerated to a 39-month high of 6.5% in February from 5.2% a month ago.
The 10-year bond yield closed at 6.903% compared to its Friday’s close of 6.904%. Bond yields and prices move in opposite directions. Markets were closed on Monday on the occasion of Holi.
“We expect WPI inflation to remain elevated in March, as the pass through of higher global commodity prices into domestic inflation is ongoing and because perishable food inflation also appears to be headed higher (as remonetisation progresses). Beyond Q1, the year-on-year WPI inflation rate should taper off, as commodity-related base effects start to fade. We expect WPI inflation to average a much higher 4.4% y-o-y (year-on-year) in 2017 versus 2% in 2016,” said Nomura in a note to its investors.
“In our view, CPI inflation troughed in January (at 3.2% y-o-y) and will start rising due to higher perishable food prices, a gradual narrowing of the output gap, higher minimum support prices and the recent uptick in rural wages. On the policy front, we expect the RBI to leave rates unchanged throughout 2017,” the report added.
Traders are now cautious ahead of consumer price inflation data for February due after 5.30pm on Tuesday. According to Bloomberg analyst polls, CPI will be at 3.6% for February versus 3.17% a month ago.
Traders were also cautious ahead of the expected increase in US interest rates during a two-day meeting which will start on Tuesday and end on Wednesday, and were looking for clues on how quickly the US central bank is planning to tighten monetary policy.
So far this year, foreign institutional investors (FIIs) have bought $2.85 billion and $576.70 million from local equity and debt markets, respectively.
Most Asian currencies were trading lower. South Korean won was down 0.4%, Indonesian rupiah 0.11%, China Offshore spot 0.1%, Taiwan dollar 0.08%, Malaysian ringgit 0.07%, Hong Kong dollar 0.06%, Japanese yen 0.06%, Philippines peso 0.05%.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 101.58, up 0.27% from its Monday’s close of 101.31.