March 7 (Bloomberg) -- India’s rupee strengthened, rebounding from a seven-week low, on speculation the central bank sold dollars.
The currency advanced for the first time in five days, after earlier dropping as much as 0.8 percent on concern the ruling Congress party’s loss in a regional election will derail economic reforms. A weaker currency may worry the Reserve Bank of India as oil prices have risen 14 percent this year and the country imports 80 percent of its needs, according to Kamlakar Rao, head of foreign exchange trading at Allahabad Bank.
“The market suspects RBI intervention today,” Mumbai-based Rao said. “This might lead to a stronger rupee this week.”
The currency advanced 0.2 percent to 50.2869 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 50.7575 earlier, the lowest level since Jan. 18. The market will be shut tomorrow for a local holiday.
The Samajwadi Party, which is opposed to overseas investment in the retail sector, won a majority of seats in India’s most-populous state of Uttar Pradesh. Prime Minister Manmohan Singh pledged in December he would revive a plan to open the industry to companies such as Wal-Mart Stores Inc. after the state elections.
“The ruling Congress party did more poorly than expected,” analysts at Credit Agricole CIB, including Hong Kong-based Dariusz Kowalczyk, wrote in a note to clients today. That “bodes ill for investment, growth, foreign-capital inflows and the rupee,” the note read.
Three-month onshore forward contracts traded at 51.30 a dollar, compared with 51.37 yesterday, and offshore non-deliverable contracts were at 51.41 from 51.38. 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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