New Delhi: The rupee gained for a third day on expectation that the fastest economic growth in almost two decades will attract investment from overseas.
The rupee, the best performer in the Asia-Pacific region this year, may extend its 9.2% advance as scheduled share sales this month by companies, including real-estate developer DLF Ltd, increase capital inflows. The currency also rose on optimism that the central bank will allow it to keep strengthening to helptemper inflation.
“With their priority being inflation management at the moment, the central bank may allow a calibrated appreciation of the rupee,” said R.K. Gurumurthy, chief currency trader at ING Vysya Bank Ltd in Mumbai. “With the share sales, they’d like to wait and see how much to sterilize.”
The rupee rose 0.1% to 40.5275 against the dollar as of the 5pm close in Mumbai, according to data compiled by Bloomberg. The currency may touch 40.30 this week, Gurumurthy said.
Asia’s fourth-biggest economy expanded 9.4% in the fiscal year ended March, the fastest since 1989, a government report showed on 31 May. Accelerating growth and the government’s aim to almost double foreign direct investment into the country to as much as $30 billion in the current fiscal year may help the rupee strengthen.
The local currency pared gains last week after touching a nine-year high on speculation the Reserve Bank of India will stem its advance to protect exporters’ earnings as the trade deficit widened to a record.
The trade deficit widened to $7.1 billion in April as the rupee climbed 9.3% this year. A stronger currency makes a country’s goods and services more expensive while boosting demand for imports because of lower costs.
Tata Consultancy Services Ltd, a software maker that generates almost all its sales overseas, last week had said profit margins were shrinking because of a strengthening rupee. The company increased the amount of receipts it hedges to $1.5 billion from $1.2 billion to protect against exchange rate fluctuations.
RBI governor Yaga Venugopal Reddy who has vowed to slow inflation to as low as 4% in the “medium term,” needs to choose between a stronger rupee that hurts exporters and quicker inflation.
The monetary authority slowed dollar purchases in March and April after buying a record $11.9 billion in February as intervention meant injecting rupee funds into the local banking system, which in turn stokes inflation.