The rupee rose for a second day on speculation gains in local stocks will prompt global funds to increase purchases.
The rupee has strengthened almost 12% this year, the top performer of Asia?s 10 most actively-traded currencies, as overseas investors bought a record $16.4 billion more stocks than they sold. Finance minister Palaniappan Chidambaram on Tuesday said proposed curbs on offshore derivatives are aimed at improving disclosure and aren?t a ban on investment.
?The rupee?s strength will be tied to the fortunes of the stock market,? said V Kumar, chief currency trader at State Bank of Travancore in Mumbai. ?Sentiment has turned for the better after repeated assurances by the regulator and officials.?
The currency climbed as much as 0.4 % to 39.4575 against the dollar before closing at 39.58 at 5 pm in Mumbai. It strengthened 0.8% on Tuesday, the most in a month.
The Securities & Exchange Board of India?s proposals on October 16 to restrict investment by unregistered global funds in derivatives caused a plunge in the key Sensitive Index the following day. The regulator this week said it will scale back the planned caps and make it easier for investors to register.
The stock index rebounded 5.4% this week after declining 4.7% in the five days ended October 19. The rupee pared gains on speculation the central bank sold it to prevent a stronger currency from hurting exporters. The Reserve Bank of India has bought a record $40 billion in the eight months through August to curb the rally in the currency that touched a 9 1/2-year high this month.
The 10-year bonds fell, ending four days of gains, as yields at the lowest in a month deterred investors from buying debt. Bonds also declined on concern debt auctions worth Rs 20,500 crore ($5.2 billion) this week will damp demand for existing securities. The Reserve Bank of India sold Rs 6500 crore of treasury bills in the first sale today, including securities to soak up surplus cash. ?It is only understandable that some investors want to book profit after the rally we saw in the past few days? before the auctions begin, said Mahendra Jajoo, who manages the equivalent of $2 billion as chief investment officer at ABM Amro Asset Management Co in Mumbai.
