New highs for the Rupee v. the US Dollar
The Indian rupee gained to its strongest against the dollar in 10 months on Thursday as banks sold dollars to meet funding needs amid a cash squeeze that has pushed the call money rate to six-year highs this week.
Dealers said capital inflows into local equities and the absence of central bank intervention to cap the rupee had prompted some dealers to sell the dollar aggressively.
The partially convertible rupee ended 0.11 percent up at 44.25/44.26 per dollar after climbing as far as 44.22/44.23 -- its highest since mid-February, according to Reuters data.
"The typical end-of-month importer demand seems to have abated for the moment. Also capital inflows are strong and that is pushing the rupee higher," said R.K. Gurumurthy, chief currency trader at ING Vysya Bank.
Foreign funds have bought more than $8 billion worth of Indian equities this year. Further, the rupee's yield attraction had increased after the central bank said it would increase the cash reserve requirement (CRR) for local banks, which has tightened the supply of cash and pushed up market rates.
The overnight money market rate hit 13 percent on Wednesday -- its highest since September 2000 and well above the central bank's overnight lending rate of 7.25 percent -- and was around 12 to 12.5 percent on Thursday.
"There was some concern the Reserve Bank of India may intervene to stem the rupee's sharp rise but that hasn't happened so far, as that would blunt the CRR hike objective," said a senior trader at a foreign bank."
The central bank intervenes to protect the rupee's export competitiveness against other currencies or curb volatility. But the intervention also adds to the supply of rupees in the market, which effectively loosens monetary policy.
According to a JP Morgan index , the rupee is overvalued by more than 8 percent compared to about 7 percent in the month-ago period.
"Strong inflows supported by a largely optimistic sentiment towards emerging markets should push dollar/rupee lower, though central bank operations to curb volatility and check valuations might result in limited upside for the rupee," said a recent JP Morgan report
Dealers said capital inflows into local equities and the absence of central bank intervention to cap the rupee had prompted some dealers to sell the dollar aggressively.
The partially convertible rupee ended 0.11 percent up at 44.25/44.26 per dollar after climbing as far as 44.22/44.23 -- its highest since mid-February, according to Reuters data.
"The typical end-of-month importer demand seems to have abated for the moment. Also capital inflows are strong and that is pushing the rupee higher," said R.K. Gurumurthy, chief currency trader at ING Vysya Bank.
Foreign funds have bought more than $8 billion worth of Indian equities this year. Further, the rupee's yield attraction had increased after the central bank said it would increase the cash reserve requirement (CRR) for local banks, which has tightened the supply of cash and pushed up market rates.
The overnight money market rate hit 13 percent on Wednesday -- its highest since September 2000 and well above the central bank's overnight lending rate of 7.25 percent -- and was around 12 to 12.5 percent on Thursday.
"There was some concern the Reserve Bank of India may intervene to stem the rupee's sharp rise but that hasn't happened so far, as that would blunt the CRR hike objective," said a senior trader at a foreign bank."
The central bank intervenes to protect the rupee's export competitiveness against other currencies or curb volatility. But the intervention also adds to the supply of rupees in the market, which effectively loosens monetary policy.
According to a JP Morgan index , the rupee is overvalued by more than 8 percent compared to about 7 percent in the month-ago period.
"Strong inflows supported by a largely optimistic sentiment towards emerging markets should push dollar/rupee lower, though central bank operations to curb volatility and check valuations might result in limited upside for the rupee," said a recent JP Morgan report
posted by Howard at
5:14 PM
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