New Delhi: The rupee rose to a one-year high after the central bank signalled it may start to raise interest rates to damp inflation, boosting the appeal of the nation’s high-yielding assets.
The currency advanced the most in more than four months after Reserve Bank of India (RBI) governor D. Subbarao on Monday said he may need to tighten monetary policy earlier than advanced economies after wholesale prices quickened to their highest since end-May. India’s repurchase rate, or overnight lending rate, is 4.75%, while Malaysia’s is 2% and Thailand’s 1.25%.
“The central bank’s monetary policy will be aimed at managing inflation from which the rupee will benefit,” said Naveen Raghuvanshi, a trader at Development Credit Bank Ltd in Mumbai. “Since the issue of inflation is going to persist, the rupee has scope to accelerate its advances.”
The rupee jumped 1.35 to 46.8875 per dollar, the strongest level since 1 October 2008, according to Bloomberg data. Analysts surveyed by Bloomberg predict it will reach 45.95 by the end of June.
The rupee will strengthen 9% to 43 per dollar by mid-2010, Sebastien Barbe, a Hong Kong-based strategist at Calyon, wrote in a research report published on Tuesday.
“Higher interest rates are one of the main reasons why we are more bullish than the consensus on the rupee,” Barbe wrote.
Overseas funds purchased $12.5 billion more Indian shares than they sold this year, following record net sales of $13.3 billion in 2008, according to data provided by the Securities and Exchange Board of India.
Lilian Karunungan in Singapore contributed to this story.