Rupee off highs as capital control talks weigh

Rupee off highs as capital control talks weigh

Mumbai: The rupee closed largely steady on Monday as gains in domestic shares and the dollar’s broad losses versus major currencies were offset by concerns of capital controls in some Asian countries.

The partially convertible rupee closed at 44.41/42 per dollar, off the day’s high of 44.18 and little changed from Friday’s close of 44.42/43. The rupee had hit a 25-month high of 44.1250 on Thursday.

“The rupee retreated tracking the euro which came off slightly and also due to some import covering," said A. Ajith Kumar, a foreign exchange dealer with Federal Bank in Mumbai.

“We may see the rupee trade in a band of 44.20-45.00 levels this week, with tomorrow’s industrial data being watched for cues. The market expects a slightly weaker data," he said.

India’s annual industrial output growth probably slowed down to 9.65% in August from the previous month, the median forecast of 20 economists showed.

“There was profit-taking seen in Asian currencies on Thailand capital control expectations and Korea’s announcement and later denial of withholding tax on bond investment," a senior foreign exchange dealer with a foreign bank said.

Thailand may impose a tax on bonds to slow foreign inflows, the government said on Monday, as it grapples with a surge in the baht against the dollar that has alarmed exporters at the heart of its economy.

The South Korean won fell back from earlier gains, following a local media report on the possibility of a withholding tax on bond investments by foreign investors. But a senior finance ministry official said after the financial markets closed that the government had no plan to re-impose such a tax.

“The outlook from now on is a little cloudy but tomorrow’s Coal India pricing will be key in determining expectations for flows," the senior foreign exchange dealer said.

Sustained capital infows

Hopes for foreign inflows remains upbeat with state-owned Coal India set to open an initial public offering (IPO) in mid-October to raise up to $3 billion. Other state firms planning follow-on share sales include Power Grid Corp and Steel Authority of India.

Continued foreign fund inflows pushed Indian shares 0.4% higher on Monday, amid firm global markets, with Reliance Industries and metal producers leading the gainers.

Foreign funds have bought shares worth a record $21.4 billion so far this year, in addition to last year’s $17.5 billion. The unit is up 4.8% this year after rising 4.7% last year.

India would intervene in the foreign exchange markets if needed to maintain stability, the central bank’s governor said during a panel discussion at the International Monetary Fund in Washington on Saturday.

The index of the dollar against six majors was down 0.2%.

The dollar slipped on Monday after world financial leaders failed to reach agreement on currency imbalances, leaving the US Federal Reserve set to pursue loose monetary policy to support the ailing US economy.

One-month offshore non-deliverable forward contracts were quoted at 44.64, 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 44.55, 44.54 and 44.55 respectively, with the total traded volume on the three exchanges at a low $6.1 billion.