Mumbai: The rupee rose on speculation the central bank will allow gains in the currency to stem inflation. The currency ended four days of losses as a government report showed last week the inflation rate climbed to the highest in more than three years. The rupee also gained as a four-week rally in the benchmark share index raised optimism global funds will buy more of local equities.
“Currency appreciation is a monetary policy tool India will definitely have to explore in coming months,” said Yeo Han Sia, a Singapore-based currency strategist at Bank of America Corp. “India is witnessing imported inflation and in this situation letting the currency rise would be as good as trying to boost the domestic supply.”
The rupee climbed 0.1% to 40.61 per dollar as of the 5pm close in Mumbai. The currency will advance by almost 9% to 37 per dollar by year-end, according to Bank of America.
Inflation in India acceleratedto 7.57% in the week ended 19 April, the fastest pace since November 2004.
The rupee also rose as data from the capital markets regulator showed global funds increased investments in Indian shares in April. “More capital inflows are expected given the positive sentiment in the equity market,” said Roy Paul, assistant manager of treasury at Federal Bank Ltd in Kochi. “The rupee is gaining from that expectation.”
Anoop Agrawal contributed to this story.