India’s rupee rose from near a record low on speculation the central bank will sell foreign currency from its reserves to limit volatility in the exchange rate.
The currency gained for the first time in seven days as a central bank report showed Feb. 27 that reserves slid 21 percent from an all-time high reached in May 2008, suggesting the monetary authority increased dollar sales. The Reserve Bank of India has been intervening in the market to smooth rupee movements, acting Finance Minister Pranab Mukherjee said last week.
“The central bank is expected to intervene in the currency market following the sharp recent declines in the rupee,” said Agam Gupta, head of trading at Standard Chartered Plc in Mumbai.
The rupee traded at 51.60 a dollar as of 9:56 a.m. in Mumbai, compared with 51.9425 yesterday, when it touched a record low of 51.945, according to data compiled by Bloomberg.. The currency may trade between 51.50 and 52.25 in the coming days, Gupta said.
The Indian rupee is the third-worst performer in the past 12 months among the 10 most-traded Asian currencies, with a 22 percent loss, as the worsening global economy spurred global funds to dump local stocks. South Korea’s won and Indonesia’s rupiah have declined more.
Reserves, Volatility
The South Asian nation’s foreign-exchange reserves dropped to $249.5 billion this month, from a record $316.2 billion reached in May 2008, central bank data show. Central banks intervene by arranging sales or purchases of foreign currency to influence exchange rates.
Implied volatility on one-month dollar-rupee options climbed to 17 percent yesterday, the most since Jan. 12, Bloomberg data show. Traders quote implied volatility, a gauge of expected swings in exchange rates, as part of pricing options.
Offshore contracts indicate traders are betting the rupee will weaken 0.6 percent to 51.90 to the dollar in a month, compared with expectations for a rate of 52.38 yesterday. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.
Funds based abroad sold $1.72 billion more Indian equities than they bought this year, adding to 2008’s record $13.3 billion in net sales, according to data released by the Securities and Exchange Board of India. The Bombay Stock Exchange’s Sensitive Index has dropped 11 percent this year, following a 52 percent slide in 2008, the most ever.
Source : bloomberg.com