Is India back in the Gold buying business?

The Indian Rupee Exchange Rate vs. US Dollar.
India back in the Gold business.

Dec. 2 (Bloomberg) -- India’s rupee gained, snapping a two- day loss, on speculation the central bank sold dollars to meet demand for foreign exchange in the nation’s financial system.

The rupee rebounded from a record low touched in intraday trading as the Reserve Bank of India probably supplied foreign currency as part of its policy to curb exchange-rate volatility. The rupee has lost 1.5 percent after terrorists attacked India’s financial hub of Mumbai on Nov. 26, killing at least 195 people over almost four days in the nation’s deadliest terrorist attacks in 15 years.

“The market reversed direction as the central bank was said to have intervened in the market” to sell dollars, said Agam Gupta, head of trading at Standard Chartered Plc’s Indian unit in Mumbai. “The rupee rose as traders unwound long-dollar positions they had built earlier.”

The rupee advanced 0.3 percent to 50.15 per dollar at the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. It fell as low as 50.615 earlier.

The rupee has lost 21.4 percent this year, heading for its biggest annual loss since a balance of payments crisis forced the South Asian nation to pawn its gold with the International Monetary Fund to pay for imports.

Central banks arrange sales or purchases of currencies to influence exchange rates. The Reserve Bank’s foreign-exchange reserves fell by more than $70 billion from a record $316.2 billion reached in May, indicating it has been selling dollars to curb currency losses.

Exchange-Rate Policy

India will use its exchange-rate policy along with fiscal, monetary and public spending instruments to combat the effects of the global financial turmoil, Prime Minister Manmohan Singh said Nov. 21. The central bank will maintain its policy of curbing currency volatility by selling or buying rupees without targeting any level for the exchange rate, Governor Duvvuri Subbarao said Oct. 24.

Implied volatility on one-month dollar-rupee options was at 22.5 percent today, compared with 21 percent at the end of last week, Bloomberg data show. Traders quote the expected swings in the rupee as part of pricing options.

The rupee dropped earlier as a worldwide equity rout added to speculation investors will increase sales of riskier emerging-market assets.

‘Weak Sentiment’

“The rupee continues to reflect the weakness across global stock markets,” said Amit Garg, a trader at state-owned Allahabad Bank in Mumbai. “The currency market will stay volatile because the sentiment is weak. We will see more losses in the rupee.”

India’s benchmark share index, the Bombay Stock Exchange’s Sensitive Index, fell 1.1 percent today, taking the year’s losses to a record 57 percent. Japan’s Nikkei 225 Stock Average lost 6.4 percent after the benchmark U.S. share index, the Dow Jones Industrial Average, fell the most in almost seven weeks yesterday.

Overseas investors sold more Indian shares than they bought for a third straight week in the five days ended Nov. 28, data from the nation’s capital markets regulator showed. They sold Indian equities worth a record $13.6 billion this year, data released by the Securities and Exchange Board of India show.

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