Re rises on speculation, bonds decline as investors deterred

Aug 27 | Updated: Aug 28 2008, 05:51am hrs
The rupee rose, ending two days of losses, on speculation the central bank will seek gains in the currency to curb the fastest price increases in 16 years.

Also the yield on the 8.24% note due April 2018 climbed 6 basis points, or 0.06 percentage point, to 8.95%, according to the central bank's trading system. The price declined 0.38, or 38 paise, per 100-rupee face amount, to 95.43.

Asia's third-largest economy, which meets three-quarters of its energy needs from overseas, is grappling with inflation at the fastest since July 1992. The rupee climbed from Tuesday's 17- month low, gaining for the first time this week.

"The rupee's fall this week has increased speculation the central bank will intervene and stabilise the markets," said Ravindra Babu, a currency trader at state-owned Andhra Bank in Mumbai. "I think the rupee will halt its slide."

The rupee strengthened 0.2% to 43.75 a dollar, according to data compiled by Bloomberg.

A government report on Thursday may say India's benchmark wholesale-price growth rate accelerated to 12.8% in the week ended August 16, the fastest since June 1992, according to the median estimate in a Bloomberg News survey.

India's foreign-exchange reserves fell for a fifth week through August 15, the longest stretch of declines since November 2000, indicating the central bank sold dollars to support the rupee. Central banks intervene in currency markets by arranging the sale or purchase of foreign exchange.

The Reserve Bank of India doesn't comment on daily rupee movements and operations, its Mumbai-based spokeswoman, Alpana Killawala, said.

India's foreign-currency reserves dropped to $286 billion in the week ended August 15 from a record $306.2 billion in May, according to data provided by the central bank.

The 10-year bonds fell, ending a three-day gain, as yields near a two-month low deterred investors before a government report tomorrow on inflation.

The report is likely to show India's benchmark wholesale-price inflation rate accelerated to 12.8% in the week ended August 16, the fastest since June 1992, according to the median estimate of a Bloomberg News survey.

"Investors are taking this opportunity to cash in on the recent rally," said Roy Paul, assistant manager of treasury at Federal Bank Ltd in the southern Indian city of Kochi.