Re rises a second day; bonds fall ahead of Budget

Feb 26 | Updated: Feb 27 2008, 06:09am hrs
The rupee advanced a second day, on speculation overseas investors will add to their holdings of local equities as the benchmark stock index extended gains.

The rupee was among nine of Asias 10 most-active currencies that advanced on Tuesday, on speculation that further cuts in US interest rates will attract funds into emerging markets. Record stock purchases of $17.2 billion in 2007 helped the rupee complete its best year since at least 1974. The rupee rose 0.2% to 39.9075 per dollar, according to data compiled by Bloomberg.

Overseas funds bought $334 million more Indian stocks than they sold in the week through February 22, compared with net sales of $408 million the prior week, according to data provided by the Securities & Exchange Board of India.

Finance minister Palaniappan Chidambaram will present the budget on February 29 in New Delhi. The statistics office said on February 7, the $906 billion economy might expand 8.7% in the year to March following a growth of 9.6% in the last financial year.

The benchmark bonds declined on concern a cut in rail fares will force the government to increase its borrowing in the year beginning April.

The securities erased earlier gains after railway minister Lalu Prasad reduced passenger fares and freight rates in the state-run network's annual budget.

The yield on the most-traded 7.99% note due July 2017 was little changed at 7.62%, according to the central bank's trading system. The yield, which moves inversely to prices, dropped to 7.59% earlier in the day. The price fell 0.04, or 4 paise per 100 rupee face amount, to 102.41.

The government budgeted to borrow about Rs 1.55 lakh crore ($39 billion) in the year ending March 31, compared with Rs 1.52 lakh crore in the previous fiscal year.

Bonds advanced earlier as a government report this week may show economic growth slowed, adding pressure on the central bank to lower borrowing costs.

Asia's third-largest economy grew 8.4% in the quarter through December, the slowest in more than two years, according to the median estimate in a Bloomberg News survey. The government will release the data February 29. Rate reductions by the Federal Reserve also may spur the Reserve Bank of India to reduce borrowing costs for the first time since August 2003.

Growth may slow for the first time in three years to 8.7% in the 12 months to March 31, the statistics office said February 7. The economy expanded 9.6% last fiscal year.

Bloomberg