Money market cools down, Re rises most in 10 years

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July 23 : India's rupee rose by the most in more than a decade on speculation global funds, who turned net sellers of local stocks this year, will stay invested after Prime Minister Manmohan Singh won a confidence vote yesterday.

The yield on the benchmark 8.24 % note due April 2018 fell 10 basis points to 9.02% The price rose 0.63, or 63 paise per 100 rupee face amount, to 95.01. A basis point is 0.01 percentage point.

The 10-year yield has retreated 53 basis points from a seven-year high reached on July 11 as oil slumped more than 14 percent from an all-time of $147.27 per barrel. Crude oil fell 11.2 percent last week, the biggest slide since December 2004.

However the call rates on Wednesday have continued to be over 9%.

The currency climbed to the highest level in more than two months after crude oil dropped for a second day, spurring optimism India's import costs will fall. The rupee rallied on speculation Singh, helped by a new political ally, will introduce changes including giving overseas companies a bigger role in the local financial industry.

“The entire investment atmosphere will turn positive,” said Jayant Chiney, treasurer at state-owned Bank of India in Mumbai. “In the immediate future, the contribution of overseas investors into the markets will increase possibly at a faster pace than we've seen. The rupee will benefit from that.”

The rupee strengthened 1.6 %, the most since Jan. 19, 1998, to 42.075 a dollar Today's closing rate is the strongest since May 12.

Singh's Congress Party-led coalition government had to face a confidence vote to prove it enjoys a majority in parliament after its erstwhile allies, the communists, withdrew their support over a proposed civilian nuclear deal with the US. The rupee has advanced 8.2 percent against the dollar since the Congress Party proposed Manmohan Singh as its candidate for prime minister on May 18, 2004. The currency has gained in 10 of the 17 quarters after Singh took office, and risen in three of the five years through 2008.

The 10-year bonds advanced on speculation falling oil prices will help slow inflation and ease pressure on the central bank to raise interest rates.