The rupee, Asia’s best performer in the past quarter, climbed for a third day on optimism that economic growth and rallying stocks will attract more overseas investment.
“Capital flows continue to be good,” said L.V. Prasad, chief currency trader at IndusInd Bank Ltd. in Mumbai. “We’re seeing external commercial borrowings, foreign direct investment and other inflows increase.”
The rupee rose 0.2% to 40.65 against the dollar as of the 5pm close in Mumbai, according to data compiled by Bloomberg. The currency had a fourth quarterly gain in the three months through June, the longest winning streak since March 2004. Its 6.8% advance last quarter was the most since at least 1973 and the biggest among Asian currencies.
The capital account surplus rose to $17.9 billion in the three months to 31 March from $10.28 billion in the previous quarter as foreign direct investment and overseas borrowings by companies increased, the Reserve Bank of India (RBI) said on 29 June.
Soaring high: The currency had a fourth quarterly gain in the three months through June, the longest winning streak since March 2004.
Foreign direct investment rose 78% in the year through March to $8.44 billion. Overseas borrowings by Indian firms rose almost six-fold to $16.1 billion, more than a third of the total capital inflows, according to the central bank. Companies are borrowing more abroad to benefit from lower US dollar interest rates.
Overseas investment in local stocks more than doubled in the week through 27 June from the previous five days. Global funds bought a net average $71 million of stocks each day, up from $35 million, according to the Securities and Exchange Board of India.
The rupee may pare gains on concern RBI will sell the currency to curb a rally that threatens to hurt exports. “The government appears to be concerned about exporters and it’s not likely that policy makers will let the rupee rise further,” said Abraham Thariyan, general manager of treasury at Federal Bank Ltd in Kochi. “There will be some currency intervention by the central bank, which will stop rupee gains.”
RBI has been managing capital inflows and the exchange rate by purchasing dollars and mopping up excess cash, deputy governor Rakesh Mohan said on 14 June. RBI’s foreign exchange reserves rose a total $8.6 billion over the five weeks through 22 June, suggesting it has been exchanging rupees for dollars.
The rupee may fall to 40.83 against the dollar this week, according to the median estimate of 10 traders surveyed by Bloomberg News.