Mumbai: The rupee was trading higher against the US dollar on a quiet trading day Monday, having weakened earlier after government data showed the pace of wholesale inflation had quickened in November, increasing the chances of an interest rate hike by the Reserve Bank of India (RBI) later this week. At 2:20pm, the Indian currency was trading at 61.96 per dollar, up 0.27%, after weakening to 62.215 earlier in the day. It had opened at 62.145 per dollar against its Friday’s close of 62.125. Date released on Monday showed that Wholesale Price Index (WPI)-based inflation accelerated to 7.52% in November from 7% a month ago, as onion prices almost tripled. Prices of vegetables which constitute 60% of the index increased 95.3%, while fuel inflation rose 11.1% and prices of manufactured products by 2.52%. The Indian government’s industry department also revised the September wholesale inflation to 7.05% from the provisional figure of 6.46% released earlier. “Today’s numbers have forced the market to think about the rate hike,� said a dealer with a private bank. “This along with Thursday’s numbers have increased the chances of a rate hike on Wednesday,� he added. RBI will announce its mid-quarter policy review on Wednesday in which the money markets are now pricing in a 25 basis points (bps) hike in the repo rate, or the rate at which the central bank lends to banks. One basis point is 0.01 percentage point. Data released last week showed retail inflation in November increased to an all-time high of 11.24% since the new series was launched in January 2012 from 10.17% in October. The Index of Industrial Production (IIP) also contracted 1.8% in October, mostly because of a base effect, after expanding 2% in September. Since January this year, the rupee has weakened 11.38% and has lost the third most after the Indonesian rupiah and Japanese yen among Asian currencies during that period. The dollar index, which measures the US currency’s strength against major currencies, was trading at 80.124, down 0.11% from its previous close of 80.214. The yield on India’s 10-year benchmark bond was trading at 8.885%, compared with its Friday’s close of 8.912%. India’s equity benchmark S&P BSE Sensex was trading at 20,679.02 points, down 0.18%. Fed outlook “Markets are still seeking an answer to the one unresolved issue that has dominated sentiment since the middle of this year; the tapering of quantitative easing by the Fed,� Tim Fox, chief economist at Emirates NBD PJSC in Dubai, wrote in a research report on Monday. “Due to the continued elevation of inflation, an increase in Indian interest rates can be expected, a step that may also be necessary to support the rupee should the Fed reduce its bond purchases,� he wrote. Three-month offshore non-deliverable rupee forwards rose 0.5% from 13 December to 63.26 per dollar, according to data compiled by Bloomberg. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

Source