Jan. 6 (Bloomberg) -- India’s rupee completed its first weekly gain in a month on speculation foreign funds will step up purchases of the nation’s assets after the central bank signaled it may cut borrowing costs.
The currency was also boosted as the Reserve Bank of India eased rules for companies to borrow from abroad, according to a statement on the monetary authority’s website yesterday. Foreign funds boosted holdings of Indian shares by $102 million this week through Jan. 4, exchange data show, after the government allowed overseas individual investors to directly buy local equities. RBI Deputy Governor Subir Gokarn reiterated yesterday that India’s cycle of monetary tightening has “peaked” and a reversal will depend on inflation and economic growth.
“All these positive developments will have a stabilizing effect on the rupee,” analysts at Morgan Stanley, including Hong Kong-based Stewart Newnham, wrote in a report published yesterday. That said, downside risks “have not been totally extinguished,” according to the report.
The rupee gained 0.7 percent this week to 52.7225 per dollar in Mumbai, boosted by a 0.5 percent advance today, according to data compiled by Bloomberg. The currency tumbled 16 percent last year, more than triple the loss in the next worst performer among Asia’s 10 most-used currencies, and reached a record low of 54.3050 on Dec. 15. Morgan Stanley predicts the rupee will reach 54.80 by mid-2012.
The central bank is “very concerned” about the impact of the rupee’s depreciation on inflation, Gokarn said at a conference in Singapore yesterday. Increases in India’s living costs averaged 9.6 percent in the first 11 months of last year, government data show.
Three-month offshore forwards for the rupee traded at 53.71 to the dollar, compared with 53.92 yesterday. Forwards are agreements to buy or sell assets at a set price and date. Non- deliverable contracts are settled in dollars.
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