The rupee rose 1.34 per cent to a one-year high of 46.88/89 after the Reserve Bank indicated that it might start raising interest rates to cool down inflation,raising the prospects for more capital inflows.
Moreover,Australias move to hike rates the first by a developed economy (G20) in more than a year fuelled speculation that other Asian countries who have been less effected by the global crisis like India may start withdrawing easy policy conditions,leading to higher flows into those countries. The currency advanced the most in more than four months after RBI Governor D Subbarao on Monday said the RBI may need to tighten monetary policy earlier than advanced economies after inflation rose to their highest since end-May. “Any interest rate hike will boost capital flows as returns of overseas investors will increase,” said a dealer.
The RBI Governor on Monday said risk appetite is now returning and there are signs of recovery in portfolio investments to emerging market economies. For instance,portfolio investments by FIIs in the Indian equity market amounted to $ 13.6 billion in the period April 1-September 18,2009 as against outflows of $ 5.2 billion in the corresponding period of 2008 reflecting a turnaround of almost $ 19 billion.
The rupee gained 63 paise to close at a one-year high of 46.88/89 against the dollar. Forex dealers expect the Reserve Bank to intervene and buy dollars to stem the rupee rise. Exporters and corporates sold dollars after the American unit slid further against a basket of currencies in overseas markets following weaker-than-expected US job data. The dollar was under pressure since Monday.
Dealers said exporters and corporates sold dollars in the spot market and bought them at lower levels at forward markets,thus making profits. The domestic currency opened stronger at 47.32/33 a dollar from its previous close of 47.51/52 per dollar and breached the 47-mark to touch a high of 46.89. It later ended at 46.88/89 a dollar,the level not seen since October 1,2008 when the rupee closed at 46.62/63 a dollar.
The rupee which had touched a low of 52.2 in March 2009,rose over 11 per cent from the lowest level this year.
BOND PRICES DOWN
MUMBAI: Government bond prices gave up recent gains as rate hike worries overshadowed lingering hopes of an increase in banks bond portfolio that need not be marked to market prices. The 6.90% 2019 bond ended at Rs 97.62,down from Rs 98.21 Mondays close while yield on the benchmark note rose eight basis points to 7.24%. The 6.35 per cent security maturing in 2020 dropped to Rs 90.49 from Rs 91.33 while its yield firmed up to 7.71 per cent from 7.59 per cent. The mood was upbeat recently as bankers were hoping the RBI was still considering hiking the held-to-maturity cap. But the RBI governors comments have soured sentiment in the market.