India’s rupee rebounded from near a five-month low after the central bank tightened rules on exporters’ earnings to boost dollar supply and stem Asia’s worst exchange-rate loss.
The currency rose as much as 1.6 percent, the most since December, after the Reserve Bank of India cut the amount of overseas income companies can hold in foreign currency to 50 percent from 100 percent, forcing them to convert earnings. The rupee also gained on speculation the central bank intervened in the market to sell dollars.
Reserve Bank Governor Duvvuri Subbarao is stepping up efforts to support the currency after it lost 4.8 percent this quarter, fueled by Standard & Poor’s decision on April 25 to cut the outlook on the nation’s BBB- rating to negative. Funds based abroad cut holdings of Indian stocks and bonds by a total $781 million in the month through May 8 and the nation’s trade deficit rose to a record $184.9 billion in the fiscal year ended March 31, official figures show.
“The rupee’s rally today is completely because of this announcement,” said Paresh Nayar, head of money-market and currency trading in Mumbai at FirstRand Ltd. (FSR) “The rupee has to strengthen because of the RBI moves but we have to wait and see how it reacts in the coming days as we still have a trade deficit, which means demand for dollars will be strong.”
The rupee advanced 0.8 percent to 53.4250 per dollar in Mumbai, according to data compiled by Bloomberg. It had touched 53.9225 on May 4, the lowest level since falling to a record low of 54.3050 on Dec. 15. The currency’s one-month implied volatility, a measure of exchange-rate swings used to price options, rose 50 basis points, or 0.5 percentage point, to 11.70 percent.
Indian stocks advanced as much as 1.2 percent after the central bank’s move, before reversing gains on concern Europe’s debt crisis will sap demand for emerging-market assets.
The 17-nation euro area is on the verge of losing one of its members as Greece’s election impasse threatens to worsen its debt problems, according to more than 50 percent of investors who participated in the Bloomberg Global Poll.
The BSE India Sensitive Index (SENSEX), or Sensex, fell 0.4 percent to 16,420.05 in Mumbai.
In the government bond market, the yield on the benchmark 8.79 percent notes due November 2021 was little changed at 8.56 percent percent, according to the central bank’s trading system. The rate had dropped to 8.53 percent after the central bank’s announcement.
‘At the Bottom’
“We’re pretty much at the bottom in terms of the rupee and most of the bad news is in the price,” Hans Goetti, Singapore- based chief investment officer for Asia at Finaport Investment Intelligence, which has $1.5 billion in assets under management, told Bloomberg UTV today. “We don’t see much of a downside risk for Indian markets from here.”
The Sensex has risen 6.2 percent this year as foreigners pumped $8.7 billion into Indian stocks on optimism the central bank would ease monetary policy after a record run of increases in interest rates slowed economic growth and eroded corporate earnings. Four out of 14, or 29 percent, of Sensex companies posted March-quarter profits that trailed analyst estimates, compared with a 47 percent in the December quarter.
India VIX, which measures the cost of protection against losses in the S&P CNX Nifty (NIFTY) Index on the National Stock Exchange, declined 1.4 percent to 22.72. The BSE 200 Index (BSE200) fell 0.2 percent to 2,023.67. A total of 892 million shares changed hands on the BSE and NSE yesterday, 1 percent less than the daily average in the past year, data compiled by Bloomberg show.
Six-month onshore currency forwards were trading at 55.05 a dollar, compared with 55.56 yesterday, and offshore non- deliverable contracts were at 55.25 from 55.73. 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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