BLBG:Rupee Climbs to Two-Month High Before Interest Rate Decision: Mumbai Mover
India’s rupee rose past 50 a dollar for the first time since November ahead of an interest-rate review today at which economists forecast the central bank will leave borrowing costs unchanged to support economic growth.
The Reserve Bank of India will maintain its benchmark rate at 8.50 percent at 11 a.m. in Mumbai, according to all 21 economists in a Bloomberg News survey. The market is expecting a cut in the cash-reserve ratio for banks, which will be interpreted as monetary easing and boost foreign investors’ purchases of local assets, according to Vikas Babu, a currency trader at state-owned Andhra Bank.
“Traders are bullish on the expectation of inflows,” Mumbai-based Babu said.
The rupee gained 0.1 percent to 50.0450 per dollar as of 10:30 a.m. in Mumbai, according to data compiled by Bloomberg. It touched 49.9850 earlier, the strongest level since Nov. 14. Babu said he expects the currency to trade between 49.92 and 50.30 today. The rupee may weaken later as oil importers are expected to step up purchases of the greenback, he said.
Foreign funds boosted holdings of Indian debt by $3.2 billion this month through Jan. 19 to $29.3 billion and investments in stocks rose by $1.4 billion as of Jan. 20, exchange data show.
Economic growth is weakening more than anticipated and inflation remains “high” as the rupee’s 9 percent fall in the past 12 months threatens to stoke price pressures, the central bank said yesterday.
‘Fragile’ Sentiment
The rupee fell 16 percent in 2011, the worst performance among Asia’s 10 most-traded currencies. It has rebounded 6 percent this year to be the region’s biggest gainer on central bank intervention, regulatory changes and better global risk appetite, according to Brown Brothers Harriman and Co. Late last year, the RBI and the government announced measures to curb speculation in the foreign-exchange market and attract capital inflows. The monetary authority sold $2.92 billion of foreign currency in November, official data show.
“Still, we think that sentiment remains fragile and frontloading rate cuts will only make the RBI’s life harder should it have to step in to defend the rupee once again,” Ilan Solot, an emerging-markets currency strategist at Brown Brothers Harriman in London, wrote in a report published yesterday. “We don’t think the underlying fundamentals have shifted that much in 2012, so we remain skeptical that the rupee’s outperformance can continue.”
Three-month onshore forwards traded at 51.10 a dollar compared with 51.12 yesterday, according to data compiled by Bloomberg. Offshore forwards traded at 51.13, compared with 51.19 yesterday. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net
To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.
