Re has best week since September; bonds have worst week in 13 months

Mar 28 | Updated: Mar 30 2008, 04:45am hrs
The rupee advanced, capping the biggest weekly gain since September, as inflation at a 13-month high, spurred speculation the central bank will allow further gains to help temper prices.

The local currency closed stronger than 40 a dollar for the first time in a month, after a government report showed the rate of inflation rose more than forecast. Policy makers allowed a 12.3% appreciation last year, the most since 1974, helping cool inflation to a five-year low in October. A stronger currency lowers costs of imports including crude oil.

The rupee gained 1.3% this week, the most since September 21, to 39.8875 per dollar, according to data compiled by Bloomberg. It strengthened 0.2% this month.

Wholesale prices rose 6.68% in the week ended March 15 from a year earlier, the most since January 2007, the ministry of commerce & industry said on Friday. A Bloomberg survey of 14 economists had forecast a 5.96% gain.

The median estimate of a Bloomberg News survey of 24 strategists and economists is for the rupee to advance to 39.7 by the end of this month.

The benchmark bonds fell, rounding off their worst week since January 2007, after a report showed inflation accelerated to the fastest in 13 months.

The benchmark yield climbed to the highest level in almost four months, after wholesale prices rose more than forecast, spurring speculation the central bank will refrain from cutting its benchmark rate at its meeting next month.

The yield on the most-traded 7.99% note due July 2017 jumped 27 basis points this week to 7.91%, according to the central banks trading system. That is the highest since November 30. The price fell Rs 1.8 per 100-rupee face amount, to 100.52.

Inflation accelerated to 6.68% in the week ended March 15 from a year earlier, the ministry of commerce and industry said on Friday. A Bloomberg survey of 14 economists had forecast a 5.96% gain.

Reserve Bank left its key rate unchanged near a six-year high in January, citing prices. The bank will review policy next on April 29.

Bonds also declined as the federal government prepares to sell bonds next month.

Bloomberg