The rupee climbed the most in a month since April on optimism the nation’s economic growth and rallying stock market will attract increased investment from abroad.
The currency advanced for a fifth quarter as the benchmark Sensex rose to a record for the eighth straight day. The rupee also gained on speculation investors will exchange the dollar for higher-yielding emerging market currencies after the US Federal Reserve cut interest rates this month.
“We expect rupee appreciation to continue as capital inflows remain strong,” Yeo Han Sia, currency strategist at Bank of America Corp., said in Singapore. “There are greater flows into regional markets after the Fed rate cut. The strong response to ICICI Bank’s dollar bond this week shows investors remain confident about Asia, particularly India.”
The rupee gained 2.5% to close at 39.84 per dollar in Mumbai, according to data compiled by Bloomberg. The currency rose as high as 39.62—the strongest since April 1998, on 26 September. Its 11.2% gain this year is the second highest among 18 Asia-Pacific currencies tracked by Bloomberg.
The rupee may rise to 39 by the end of the year, Yeo said.
The Sensex rose 0.8% to a record 17,291.1 on Friday. Overseas investors bought shares worth $246 million (Rs979 crore) more than they sold on 26 September, taking net purchases this year to a record $11.6 billion, according to the Securities and Exchange Board of India.
ICICI Bank Ltd., India’s biggest bank by market value, received orders worth more than three times the $2 billion of five-year bonds it offered to international investors this week. The bonds rose in the secondary market on Thursday, indicating increased demand, according to Merrill Lynch & Co.
The rupee’s accelerated gains prompted at least three banks to raise their forecasts for the currency this week. JPMorgan Chase & Co. said on Friday the rupee will rise to 39.5 by the year-end, reversing by almost 6% an earlier call for the currency to decline.
Standard Chartered Plc. this week raised its end-2007 rupee forecast to 39.50 from an earlier call for the currency to decline to 41.80. UBS AG, Europe’s largest bank by assets, raised its three-month forecast, predicting the currency will rise to a decade-high 38 per dollar.
The Indian currency also gained as lower US interest rates spurred demand for higher-yielding currencies, said David Mann, Hong Kong-based senior strategist at Standard Chartered. Bloomberg