Bloomberg News

Rupee Completes Monthly Gain on Rate Rise, Europe Debt Plan

October 31, 2011

Oct. 31 (Bloomberg) -- India’s rupee completed its first monthly gain since July after the central bank increased interest rates and Europe stepped up efforts to contain a debt crisis that drove funds from emerging-market assets.

The Reserve Bank of India raised its repurchase rate to 8.50 percent on Oct. 25 and reiterated a forecast inflation will slow to 7 percent by March. The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, rose 2.3 percent this month and the Dollar Index, which tracks the greenback against six major trading partners, declined 3.3 percent. Euro-region leaders agreed last week to expand a bailout fund to $1.4 trillion and persuaded bondholders to take 50 percent losses on Greek debt.

“There weren’t many positives for the rupee till the European Union summit drove the dollar lower across the board in the latter part of the month,” said Thio Chin Loo, a Singapore- based senior currency analyst at BNP Paribas SA. “The currency will be largely rangebound as portfolio inflows will be choppy and the rupee’s direction will depend on headline news out of Europe.”

The rupee appreciated 0.6 percent this month and 0.1 percent today to 48.6950 per dollar in Mumbai, according to data compiled by Bloomberg. It strengthened 2.6 percent last week after touching 50.3237 on Oct. 21, the weakest level since April 2009.

Foreign investors bought a net $233 million worth of Indian bonds this month through Oct. 24 and sold a net $165 million of the nation’s equities. The RBI’s “dovish” October policy statement means that stocks and bonds will start to consolidate and stay rangebound, BNP Paribas’ Thio said.

Offshore forwards indicate the rupee will trade at 49.45 to the dollar in three months, compared with expectations for a rate of 49.44 on Oct. 28. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

--Editors: Arijit Ghosh, Abhay Singh

To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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