Rupee nears 9-year peak on Fed move

Rupee nears 9-year peak on Fed move

Mumbai, 19 September Rupee rose toward a nine-year high today after the US Federal Reserve cut rates sending stocks higher across Asia, but dollar buying by state-run banks and a local company trimmed some gains.

The Fed lowered on Tuesday (18 September) the benchmark federal funds target rate by 50 basis points to 4.75% from 5.25%. It also cut the discount rate it charges for direct loans to banks by a half-point to 5.25%.

At 9:49 a.m., the partially convertible rupee was trading at a two-month high of 40.31/32 per dollar, up nearly half a percent from Tuesday’s close of 40.48/49. The unit rose as high as 40.26 in opening trades, within sight of a nine-year peak of 40.20 in July.

“They (state run banks) came in around the 40.25-30 levels, but it is difficult to say whether it is on behalf of the central bank," said a local trader. “A steel company was also seen mopping up dollars around those levels.

Asian currencies such as the Indonesian rupiah and the Philippine peso rose more than 1% each against the dollar, while major stock indices across the region surged after the US cut revived appetite for high-yielding assets.

Equity inflows have been a key driver for the rupee. Foreigners have bought about $1.1 billion of Indian stocks in September, taking their net investment to nearly $9.5 billion in 2007.

The 30-share BSE index climbed to a record high above 16,000 points in early trade.

But analysts are worried the central bank may intervene around 40.20 level to protect exporter margins. The central bank had bought $38.1 billion in the first seven months of this year to keep the rupee from appreciating too fast.

According to a JP Morgan index, the rupee was overvalued by nearly 16%, compared with 6% a year ago.

“With oil above the $82 per barrel mark, the rupee may have already done its best for the day," said a foreign bank trader. -------------------------------------------------------------