Indian rupee rises to 4-month high

New Delhi/Mumbai: India’s rupee rose to a four-month high after the government allowed overseas retailers to invest in Asia’s third-largest economy, and said foreign airlines can own minority stakes in local carriers.

The measures announced by Prime Minister Manmohan Singh’s administration last Friday came a day after a decision to cut fuel subsidies and narrow the budget deficit. The currency pared gains after the central bank kept its repurchase rate unchanged at 8 per cent Monday, while cutting banks’ cash reserve requirements by a quarter percentage point to 4.5 per cent.

The risk of the announced reforms being rolled back, “given past Indian government behaviour, is a natural concern,” Wee-Khoon Chong, Hong Kong-based strategist at Societe Generale, wrote in a note to clients Monday.

“Expect markets to give India the benefit of doubt for now.”

The rupee strengthened 0.9 per cent to 53.8050 per dollar as of 11.16am in Mumbai, following a 2 per cent advance last Friday, according to data compiled by Bloomberg. It touched 53.6550 earlier Monday, the strongest level since May 15. One-month implied volatility, a measure of exchange-rate swings used to price options, rose 150 basis points, or 1.5 percentage points, to 10.75 per cent.

Thirty five of 39 analysts in a Bloomberg survey had correctly predicted the decision on the benchmark rate. Four had predicted a 25 basis point reduction. Inflation accelerated to 7.55 percent in August from 6.87 percent a month earlier, official data showed Sept. 14, after a separate report showed industrial production grew a less-than-estimated 0.1 per cent in July.

‘Drastic step’

Trinamool Congress, the second-largest party in the ruling alliance, vowed to take a “drastic step” if Singh doesn’t abandon the laws on foreign investment and roll back a diesel price increase, and opposition lawmakers called for a nationwide strike over policies they say will trigger job losses and hurt the poor.

“As is often the case in India, it requires near crisis conditions before anything is done,” Robert Prior-Wandesforde, an economist at Credit Suisse in Singapore, wrote in a research report Monday.

“The measures taken so far, assuming they are implemented, will help the performance of India’s economy and markets at the margin, attracting more in the way of foreign direct investment and portfolio flows.”

Three-month onshore rupee forwards were at 54.71 per dollar, compared with 55.32 last Friday, and offshore non- deliverable contracts were at 54.71 from 55.08. Forwards are agreements to buy or sell assets at a set price and date. Non- deliverable contracts are settled in dollars.