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Rupee Completes Best Week Since June 18 After Central Bank's Rate Increase
India’s rupee completed its best week in more than a month after the central bank raised benchmark interest rates for a fourth time in 2010, boosting the yield on local assets.
The currency touched this month’s high today on optimism the government’s sale of shares in state-owned Engineers India Ltd. drew capital from abroad. The Reserve Bank of India boosted its overnight borrowing rate on July 27 by 0.5 percentage point, more than the quarter-point increase forecast by economists, to 4.5 percent. Overseas funds have pumped $9.3 billion into Indian equities so far this year, the most in Asia.
“The widening interest-rate differential with the dollar is working in rupee’s favor,” said Roy Paul, deputy general manager at Federal Bank Ltd. in Mumbai. “Capital flows have remained healthy, and the ongoing share sale also may help.”
The rupee appreciated 1.1 percent this week to 46.41 per dollar as of the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. It rose as high as 46.395 earlier, the strongest level since June 29. The currency climbed 0.3 percent from yesterday.
Offshore forward contracts indicated the rupee will trade at 47.08 to the dollar in three months, compared with expectations for a rate of 47.18 yesterday and 47.51 at the end of last week. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
The yield on India’s 10-year debt is now about 7.8 percent, the highest among the so-called BRIC nations that include Brazil, Russia and China. Comparable fixed-income notes yield 2.95 percent in the U.S., 2.68 percent in Germany, 3.34 percent in the U.K. and 1.05 percent in Japan.
Equity Inflows
The government seeks to raise as much as 9.6 billion rupees ($207 million) by selling its 10 percent stake in Engineers India, which provides design and construction services, in an offering that ends today. The company got bids for all the shares on offer, data on the National Stock Exchange’s website showed yesterday.
Funds based abroad raised total holdings of Indian stocks to a record $82.1 billion on July 28, according to data released by the Securities and Exchange Board of India.
To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net
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