By Anoop Agrawal, Bloomberg
Mumbai: Rupee may extend a nine-week, 7.5 % rally, as domestic banks stock up on the currency to comply with a central bank increase in reserves, a Bloomberg News survey shows.
The rupee is poised for its best month since February 1973 as economic growth that is the second fastest in the industrialized world after China draws overseas investment. The Reserve Bank of India (RBI) raised the amount lenders must set aside to cover deposits to 6.5 % from 6.25 %, effective 28 April, to drain excess funds from the system and help slow inflation.
“There will be a bias to sell dollars and I think this situation will persist, so the rupee should rise in the near term,” said Puneet Sharma, chief currency trader at state-owned Allahabad Bank Ltd. in Mumbai.
The rupee may rise to 40.85 against the dollar this week, according to the median estimate in the survey of 10 traders, from 41.094 at the close on 27 April. India’s currency has strengthened 5.8 % this month to the highest since 1998.
The central bank said its cash ratio increases this year pulled Rs275 billion ($6.69 billion) from the banking system, as it strives to cool economic growth and lending with inflation running near the fastest pace in two years.
India’s importers may quell the advance in the currency as they purchase dollars to settle month-end bills. The strength in the rupee will save costs for companies such as Indian Oil Corp., the nation’s largest refiner, and Reliance Industries Ltd., the country’s biggest company by market value, as they need less in exchange for dollars.
“The rupee is nearing its peak and I think these are attractive levels for importers to buy dollars,” said Vikas Babu, a currency trader at state-owned Andhra Bank Ltd. in Mumbai. “It may be difficult for the rupee to sustain gains.”
Money flowing into India for investment may keep the rupee from weakening as companies report increasing earnings and the benchmark stock index trades near an all-time high.
Funds abroad bought $3.05 billion more Indian equities than they sold this year through 27 April, after purchasing $8 billion in 2006 and a record $10.7 billion in 2005, according to the Securities & Exchange Board of India, the nation’s stock market regulator.
Reliance Industries on 26 April reported record profit in the quarter through March as the company’s earnings from refining and chemicals increased. Ranbaxy Laboratories Ltd., India’s biggest drugmaker, said the next day that first-quarter profit rose 79% on higher sales of generic medicines at the firm’s European unit.
“The trend of flows is a reflection of a strong outlook on the economy,” Allahabad Bank’s Sharma said. “It is keeping the dollar flows constant in the market and helping the rupee.”