Bloomberg News

Rupee Climbs Past 50 as RBI Holds Interest Rates: Mumbai Mover

January 24, 2012

Jan. 24 (Bloomberg) -- India’s rupee rose past 50 a dollar for the first time since November as the central bank left borrowing costs unchanged today to support economic growth.

The Reserve Bank of India kept its benchmark rate at 8.50 percent, as predicted by all 21 economists in a Bloomberg News survey. The central bank cut the cash-reserve ratio for banks to 5.5 percent from 6 percent. That will be interpreted as monetary easing and boost foreign investors’ purchases of local assets, according to Vikas Babu, a currency trader at state-owned Andhra Bank.

“Traders are bullish on the expectation of inflows,” Mumbai-based Babu said.

The rupee was little changed at 50.0675 per dollar in Mumbai, compared with 50.0825 yesterday, according to data compiled by Bloomberg. It rose as much as 0.3 percent to 49.9250 earlier, the strongest level since Nov. 14.

Foreign funds boosted holdings of Indian debt by $3.4 billion this month through Jan. 20 to $29.4 billion and investments in stocks rose by $1.4 billion, exchange data show.

Brazil, China and Russia have either cut borrowing costs or reduced lenders’ reserve requirements in recent weeks as the debt crisis in Europe saps global expansion. While central banks take steps to support their economies and currencies, developments in Europe will play a key role in determining the outlook, according to Andhra Bank’s Babu.

‘Fragile’ Sentiment

The rupee fell 16 percent in 2011, the worst performance among Asia’s 10 most-traded currencies. It has rebounded 6 percent this year to be the region’s biggest gainer on central bank intervention, regulatory changes and better global risk appetite, according to Brown Brothers Harriman and Co.

“The Reserve Bank took a number of steps to stimulate capital inflows and curb speculation, besides also intervening in the market consistent with its policy of containing volatility and preventing disruptive movements,” according to a policy document issued by the monetary authority today. The bank “continues to closely monitor” external developments and “will take action, as appropriate.”

Three-month onshore forwards traded at 51.14 a dollar compared with 51.12 yesterday, according to data compiled by Bloomberg. Offshore forwards traded at 51.08, compared with 51.19 yesterday. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

“We think that sentiment remains fragile and frontloading rate cuts will only make the RBI’s life harder should it have to step in to defend the rupee once again,” Ilan Solot, an emerging-markets currency strategist at Brown Brothers Harriman in London, wrote in a report published yesterday. “We don’t think the underlying fundamentals have shifted that much in 2012, so we remain skeptical that the rupee’s outperformance can continue.”

--With assistance from Manish Modi in New Delhi. Editors: Andrew Janes, Simon Harvey

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

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.


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