Rupee hits year high on inflows; arbitrage

Rupee hits year high on inflows; arbitrage

Mumbai: The rupee hit its highest level in more than a year on Wednesday, boosted by inflows to buy shares and dollar sales by banks arbitraging between the onshore spot and offshore forwards market, dealers said.

The partially convertible rupee closed at 46.66/67 per dollar, half a percent above its previous close of 46.89/90. The rupee rose to a peak of 46.49, its highest since 26 September 2008.

The local unit has gained 11.9% from its record low of 52.2 touched in early March, and is up 4.4% in 2009.

“There were likely inflows from some qualified institutional placement issue, which was the reason for today’s move. The rally is definitely likely to continue and we could see the rupee rising towards 46.50 tomorrow," said Sudarshana Bhat, chief foreign exchange dealer at Corporation Bank.

Indian companies have raised $15 billion in share sales in 2009, mostly since the middle of the year, as the share market has surged by about three-quarters. Other dealers said there were large dollar sales in the domestic market as banks sought to arbitrage the difference with offshore non-deliverable forward (NDF) rupee prices.

Banks bought dollars in the NDF market where they were cheaper and sold them in the spot market where they fetched a higher price.

One-month offshore non-deliverable forward contracts were quoted at 46.54/64, stronger than the onshore spot close.

Traders said they would closely watch the dollar’s moves for further cues. The dollar remained under pressure on Wednesday as risk sentiment improved on the back of gains in equities and oil but selling moderated on comments by a U.S. Federal Reserve policymaker.

“We believe that the appreciation bias in the INR will continue," economists at HDFC Bank said in a note, adding they expected the rupee to be trading between 45 and 46 per dollar by the end of the year.

“International fund managers tend to seek returns to shore up their profits during the last quarter of the calendar year and this yield seeking could result in another flood of dollars into the Indian equity markets before the year-end if the equity markets correct a little and Q2 company results turn out to be healthy."

Foreign investors have been net buyers of $12.7 billion so far this year, almost reversing net outflows of more than $13 billion in 2008.

In the currency futures market, the most traded near-month contracts on the National Stock Exchange and MCX-SX closed at 46.74 and 46.73 respectively, with the total traded volume on the two exchanges at a record $4.4 billion.