Mumbai: The rupee headed for its biggest quarterly gain in three-and-a-half decades on optimism that the country’s economic growth and rallying stock market will attract more investment from abroad.
The currency was poised for its fourth straight quarterly advance as overseas investment in local equities more than doubled in the week through 27 June from the previous five days. The rupee also advanced on speculation that banks will buy it to increase their local-currency holdings as borrowing costs in the local money market increase.
“Capital inflows continue to be strong, providing support to the rupee,” said V. Rajagopal, chief currency trader at Kotak Mahindra Bank Ltd in Mumbai. “Money is coming in various forms such as stock market inflows, export earnings, corporate borrowings and direct investment,” he added.
The rupee rose 0.1% to 40.7175 against the dollar this week, its third straight weekly gain. It has gained 6.8% this quarter, the best performance among 10 of the most traded Asian currencies.
Global funds bought an average $71 million (Rs291 crore) more stocks each day than they sold in the week ended 27 June, compared with $35 million in the previous week, according to market regulator, the Securities and Exchange Board of India. They invested $402.5 million on 21 June, the most in a day since this fiscal year began on 1 April.
The overnight money market rate rose for a fifth day to as high as 9.13% on Friday, the most since 27 April, according to Bloomberg data. It climbed after companies paid quarterly taxes and the government increased debt sales, draining spare cash in the system.
The government sold bonds and treasury bills worth a total Rs55,000 crore ($13.5 billion) this month, compared with Rs44,500 crore in the previous month.