Mumbai: The rupee rose on Tuesday as a surge in regional stocks eased fears of further outflows of foreign funds while bond yields edged up as oil prices crept up on hopes the global financial crisis may ease. The central bank battled hard over the past week to shore up the rupee in the face of sustained dollar buying by foreign funds, but regained composure on Monday as local shares made hefty gains.
On Tuesday, the local currency built on those gains, helped by the positive sentiment for stocks and also the increased firepower of the central bank to intervene after banks’ reserve requirement was slashed by 150 basis points to 7.5% over the weekend.
The rupee strengthened to Rs47.7750/7900 per dollar, compared with Monday’s close of Rs48.25/27. It hit a lifetime low of Rs49.30 on Friday, at which point it was down more than 20% so far this year.
When the central bank intervenes to check the rupee’s fall, it buys the local currency, making it less available in the market.
“In the short-term, we do not discount some relief for the rupee from the relief rally in stock markets in India and the world on hopes that G7 nations have done enough to restore some semblance of stability to global financial markets,” DBS said in a research note.
India’s finance minister reassured markets on Monday the government was trying to shield the economy from the global financial crisis and that it was working on more measures to infuse liquidity.
The 10-year federal bond yield rose to 7.85%, compared with Monday’s close of 7.80%.
Overnight cash rates rose to 10.15/10.25% from Monday’s close of 9.75/10.00 %, above the central bank’s main lending rate of 9.0%, indicating that cash conditions remained tight.