The rupee advanced for a third day on optimism capital flows into the country will increase as overseas investors bet on sustained growth in Asia’s fourth-biggest economy.
The rupee, Asia’s best performer this year, rose to a nine-year high after China last week widened the band in which its currency trades to 0.5% a day, from 0.3%, spurring speculation a stronger yuan will make Indian goods more competitive in global markets. “The yuan news has pushed the rupee even higher,” said Sudarshan Bhatt, chief currency trader at state-owned Corporation Bank in Mumbai. “The rupee is already under pressure to strengthen with the inflows and gains in stocks.”
The rupee rose as much as 0.4% to 40.5225 against the dollar, the highest intra-day level since 22 May, 1998, before closing at 40.60 in Mumbai, according to data compiled by Bloomberg. Should it break 40.50, it may reach 40 in coming days, Bhatt said.
Global funds on 18 May bought $299 million (Rs1,226 crore) of Indian shares more than they sold, the most in three months, according to the latest data provided by the Securities and Exchange Board of India. Foreign direct investment into the nation rose to $15.7 billion in the fiscal year ended March 2007 from $5.5 billion in the previous fiscal, according to the government.
The Sensex has risen more than 16% from near a five-month low reached on March 5 as the $854 billion economy is estimated by the central bank to expand by as much as 8.5% in the current financial year, from 9.2% last year.
The rupee trimmed gains on speculation that state-owned banks, on behalf of the central bank, are buying dollars to curb the local currency’s advances as it hurts exports.
“Speculation of central bank’s presence in the currency market increases every time the rupee takes a stride like we have seen in the recent past,” said L.V. Prasad, chief currency trader at IndusInd Bank Ltd. in Mumbai.