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Fed rate cut spurs rupee’s appreciation

Fed rate cut spurs rupee’s appreciation
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First Published: Fri, Nov 02 2007. 12 40 AM IST
Updated: Fri, Nov 02 2007. 12 40 AM IST
New Delhi: The rupee advanced for the eighth day, the best streak in 10 months, on speculation the US Federal Reserve’s interest rate cut on Wednesday will attract investors seeking higher returns in Asia’s third biggest economy.
The currency has gained almost 3% since the Fed’s previous decision in September to cut the funds target rate, as the benchmark stock index surged to a record this week. Net equity purchases by global funds reached a record this year, data provided by the capital markets regulator reveal.
“The pressure on the rupee to appreciate isn’t going to ease soon,” said Roy Paul, assistant manager of treasury at Federal Bank Ltd in Kochi. “We can expect some more inflows.” The rupee rose as much as 0.2% to 39.24 against the dollar before closing at 39.31 in Mumbai, according to data provided by Kanji Pitamber & Co. The currency has risen almost 13% this year and is the best performer in Asia.
The Fed on Wednesday lowered its target rate from 4.75% to 4.5% following a larger-than-expected reduction of half a percentage point on 18 September. India’s central bank left its policy rates unchanged on 30 October, while saying the threat of inflation persists on account of crude oil prices.
Global funds bought $8.1 billion (Rs31,833 crore) of Indian shares more than they sold in the month since 18 September, compared with $1.4 billion in the preceding month. The spread between a two-year Indian government bond and a similar maturity US Treasury note widened to 3.75 percentage points, from less than 2 percentage points in June, Bloomberg data show.
It is “too early” to assess if the Fed’s decision will increase capital flows, finance minister Palaniappan Chidambaram told reporters on Thursday.
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First Published: Fri, Nov 02 2007. 12 40 AM IST