Rupee hits 1-week high on custodian dollar inflows

Rupee hits 1-week high on custodian dollar inflows

Mumbai: The rupee strengthened to its highest level in nearly a week on Tuesday as some custodian banks sold dollars, probably for investing in the increased foreign institutional debt limits, dealers said.

The partially convertible rupee closed at 45.1625/1725 per dollar, after hitting 45.16, its strongest since 5 January and 0.6% above its 45.45/46 close on Monday when it had fallen as low as 45.5175, its weakest since 20 December.

“Custodian banks were on the selling side, was hearing of some debt-related inflows," said Rohan Naik, head of foreign exchange trading with Standard Chartered Bank in Mumbai, adding, the rupee should head towards 45 per dollar on Wednesday.

Dealers said three large foreign banks were selling dollars in the market for possibly purchasing local bonds under the enhanced debt limit.

Foreign institutional investor (FII) limits in government and corporate debt, which were increased by $5 billion each to $10 billion and $20 billion, were allotted in December.

“There was talk of some $300 million that came in via the external commercial borrowing proceeds of an engineering firm," the chief dealer with a foreign bank said.

Traders said dollar’s broad gains versus majors and choppy domestic shares, however, limited the rupee’s further upside.

Indian shares fell for the sixth session in a row on Tuesday, their longest losing run in a year, as rate rise concerns continued to rattle investors, who were also sceptical of quarterly earnings that begin this week.

Foreign funds are net sellers of $250.2 million worth shares so far in 2011, after having purchased stocks worth a record $29.3 billion in 2010, helping the local unit gain 4.1%.

Reserve Bank of India is widely expected to raise rates by 25 basis points at its policy review on 25 January and is seen raising rates by a total of 75 basis points in 2011.

Traders will watch the industrial production data on Wednesday and December’s inflation data on Friday for clarity on further rate increases.

Industrial output growth in November probably slowed to 6.6% from a year earlier, a median forecast in a Reuters poll showed.

The index of the dollar against six major currencies was up 0.1% at 80.964 when the rupee market closed. Gains in the euro also underpinned the rupee sentiment.

The euro steadied above a four-month trough on Tuesday, after Japan said it may buy about a fifth of the bonds a European rescue fund plans to sell later this month to finance a bailout scheme for Ireland.

One-month offshore non-deliverable forward contracts were quoted at 45.42, weaker than the onshore spot rate.

In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, MCX-SX and United Stock Exchange closed at 45.3150, 45.32 and 45.3150 respectively, with the total traded volume on the three exchanges at about $6.3 billion.