MUMBAI: The rupee gained a second day on speculation exporters will buy the currency after it fell last week to the lowest this month.
A weaker rupee helps exporters such as Infosys Technologies Ltd, the country’s second-biggest software maker, when they convert overseas earnings. Some exporters may sell dollars to buy one-year forward contracts on the currency which are trading at a premium to the current price.
“With a good premium in the forwards market, exporters may find it attractive to sell dollars now,” said M.A. Sardesai, general manager of treasury at state-owned Bank of Maharashtra in Mumbai. “The rupee has been trading in a tight range in the past few days. The pressure is for it to strengthen.”
The rupee, which rose as much as 0.2% to Rs44.11 against the dollar, ended trading at Rs44.2025 versus Rs44.21 on 23 February, according to data compiled by Bloomberg.
In the forwards market, investors who want to sell dollars for rupees a year from now receive 3.05% more than the current exchange rate, Bloomberg data show. Forwards are agreements in which assets are traded at a fixed price for later delivery.
The local currency fell to the lowest in four weeks on 23 February as the benchmark Bombay Stock Exchange Sensitive Index, or Sensex, posted the worst week in seven months on concern central bank steps to rein in money supply growth and curb inflation will slow the expansion of Asia’s fourth-biggest economy.
The Sensex has dropped almost 7% from a record on 8 February, according to Bloomberg data. It fell as much as 1.8% today before rallying.
The rupee may fall to Rs44.35 this week, according to the median estimate of 11 traders surveyed by Bloomberg News.
The local currency pared the day’s gains on speculation refiners including Indian Oil Corp., the country’s biggest, will buy dollars to settle their month-end import bills, said V. Rajagopal, chief currency trader at Kotak Mahindra Bank Ltd. in Mumbai.
The currency failed to strengthen beyond Rs44 earlier this month on speculation the central bank sold it to prevent gains from squeezing the earnings of exporters. The rupee has traded between Rs44.025 and Rs44.2938 this month.
The country’s foreign-exchange reserves rose $3.8 billion (Rs16,735 crore) in the week ended 16 February, following a record $5 billion addition in the previous week, according to the central bank. The accumulation suggests the central bank may have purchased dollars to keep the rupee from strengthening.
“With the month-end demand for dollars from refiners, the central bank’s task appears easier,” Rajagopal said. “In any case they will keep watching the market and act as and when the rupee rises.”
The rupee may also be buoyed by optimism companies including Nissan Motor Co., Japan’s third-biggest automaker and Renault SA will invest in the world’s second-most populous nation. The two carmakers today, along with India’s Mahindra & Mahindra Ltd., said they’ll spend Rs40 billion rupees on a factory in the southern city of Chennai.
Central bank Deputy Governor Rakesh Mohan on 24 February told bond traders the $854 billion economy is approaching a consistent growth rate of more than 9% and will be a $1 trillion economy by the year ending 31 March 2008.
India’s economy probably expanded 9.3% in the three months ended 31 December, beating the previous quarter’s 9.2% gain, according to the median estimate of 10 analysts in a Bloomberg survey. The Central Statistical Organisation will release the report on 28 February.
“Increased momentum in FDI flows has altered the dynamics for the rupee,” said Vikas Agarwal, a Mumbai-based strategist at JPMorgan Chase & Co. “A gradual appreciation for the currency seems more likely.”
JPMorgan Chase on 15 February abandoned its call for a weaker rupee this year and said the currency may end December at Rs44.25 against the dollar, stronger than its previous forecast of Rs45.5.