Re extends 9-year high against dollar as surge seen in inflows

Re extends 9-year high against dollar as surge seen in inflows

Mumbai: The Indian rupee on Thursday rose to the strongest in more than nine years on optimism that global investors will increase purchases of the nation’s stocks to tap growth in Asia’s fourth biggest economy.

The currency is the best performer in the Asia-Pacific region this year as net equity purchases by funds abroad reached an all-time high of $13.6 billion (Rs53,800 crore). The benchmark stock index touched a 10th consecutive record on Wednesday.

“The rupee is now on its own course," said R.K. Gurumurthy, head of treasury at ING Vysya Bank Ltd in Mumbai. “Corrections in stocks could have an impact in the short term, but the broader trend is for a stronger rupee."

The rupee gained 0.3% to close at 39.49 against the dollar in Mumbai, the strongest since 3 April 1998, according to data compiled by Bloomberg. It may climb to 39.25 in a week, Gurumurthy said.

India’s Bombay Stock Exchange Sensitive Index of shares, or Sensex, retreated 0.4% on Thursday, the first loss in 12 sessions.

The rupee has risen 2.4% in the two weeks since the US Federal Reserve’s larger-than-expected cut in interest rates on 18 September.

The move prompted investors to seek the higher returns on offer in emerging markets. The South Asian economy expanded 9.4% in the year ended 31 March, the fastest pace in almost two decades.

“Investors chase higher interest rates and that is the simple logic," Gurumurthy said. “Besides, India is untouched by the subprime mortgage problem seen in other countries."

Almost 71% of 215 chief executive officers surveyed by the Associated Chambers of Commerce and Industry of India expect the rupee to reach 37 by March 2008, the highest in more than 10 years.

The currency strengthened 12% in 2007, Bloomberg data show. It may weaken to 40.58 by end-December, according to the median forecast of 26 strategists surveyed by Bloomberg.

The most bullish prediction is 38.50, by BNP Paribas, made on 24 September.

The currency pared gains after touching 39.3675 earlier on speculation the central bank sold the currency to curb gains that are eroding exporters’ earnings.

“At present it’s only the central bank that is capable of stemming the rupee’s gains," said L.V. Prasad, chief currency trader at IndusInd Bank in Mumbai. “The central bank will be concerned for exporters."

India’s export growth slowed to an average 14.4% in the eight months through August from 22.4% a year earlier, while growth in imports accelerated to 27.4% in the same period from 15.8%, Bloomberg data show.

The nation had a current account deficit of $4.7 billion in the quarter ended June, compared with a surplus of $2.6 billion in the previous quarter, the central bank said last week.

The country piled in $3.7 billion of foreign currency reserves in the week ended 21 September, twice as much as in the previous week, central bank data showed, suggesting the Reserve Bank of India increased dollar purchases. BLOOMBERG


Mumbai: Suspected RBI intervention and a large outflow from a state-run power utility pushed the rupee slightly lower on 4 October, dealers said.

But foreign buying of local shares and the dollar’s weakness against the euro and a basket of currencies ensured the rupee remained within striking distance of last week’s peak of 39.62 per dollar — its strongest since April 1998.

The rupee ended at 39.85/86 per dollar, easing from 28 September’s finish of 39.8450/8500, after spending most of the day in positive territory.

“RBI presence has been strong today, and they absorbed everything that came in, which was not an insignificant sum," said a dealer with a corporate.

The Indian unit rose in early deals as the markets anticipated foreign buying of local stocks and after the dollar touched new lows against the euro and other currencies.

India’s benchmark share index rose to a record close for the ninth straight session on Monday. Data shows foreign funds bought $2.8 billion in the seven days to last Thursday.

When the rupee started moving towards its intraday high of 39.72, the RBI started intervening aggressively, and knocked it lower in late trade, dealers said.

The rupee has gained more than 11% against the dollar this year, and the central bank is widely seen as having played an active role in reducing the pace of its ascent.

The market widely believes the RBI will make a concerted effort to ensure that the local unit does not appreciate past 39.60 in the near term. Reuters