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MUMBAI: The Indian rupee surged to its highest level in more than a month on Tuesday on the back of a sharp rally in shares, dollar sales by exporters and foreign inflows into government debt.
The market also appeared to take comfort from a reiteration by the Finance Ministry of Moodys' decision in December to upgrade the short-term ceiling on Indian foreign currency bank deposits to P-3 from NP.
The rupee closed at 51.70/71 to the dollar, its strongest since Dec. 8, and 1.5 per cent higher than Monday's close of 52.50/51.
It was the currency's biggest intraday gain since Dec. 16.
“It would be a prudent case for the central bank to buy dollars after the rupee strengthens beyond 52,” said J. Moses Harding, head of asset-liabilities committee at IndusInd Bank.
“They have been selling dollars, and should be concerned with excessive volatility on the appreciation side as well.”
Indian shares rallied 2.2 per cent to their highest close in a month on expectations that easing inflationary pressure will pave the way for the central bank to begin unwinding tight monetary policy this month.
Traders said exporter selling of dollars from 52.20 levels added to the rupee's strength.
Expectations of a formal notification on the removal of foreign direct investment limits in the single-brand retail sector, also cheered the market.
New Delhi will likely issue a notification later on Tuesday to formally remove the restrictions, government source said.
Net inflows into Indian debt so far in January stand at about $1.65 billion, compared with about $213 million for equities, according to the Securities and Exchange Board of India.
“I think that the rate outlook is going to continue to be supportive for debt purchases, and foreigners may be getting ahead of the rate cuts with positioning,” said Sacha Tihanyi, senior currency strategist for Scotia Capital in Hong Kong.
One-month offshore non-deliverable forward contracts were quoted at 52.02, indicating some weakness in the short-term in the onshore spot rate.
In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange were all around 51.95 on total volume of $6.1 billion.
