Mumbai: The rupee rose to a two-week high on optimism Indian lawmakers will be able to implement a national sales tax, with inflows into local assets picking up as global central banks boost stimulus.
Prime Minister Narendra Modi’s cabinet met a key opposition demand on proposed legislation that would clear the way for the goods-and-services tax, or GST, the nation’s most ambitious economic reform since the 1990s. The US. Federal Open Market Committee’s statement released Wednesday signalled policymakers were in no rush to raise interest rates, spurring gains in emerging-market currencies.
“Improving prospects of GST getting passed is one of the key reasons boosting domestic sentiment,” said Bhupesh Bameta, head of research for currencies and rates at Edelweiss Financial Services Ltd. in Mumbai. “Fed’s policy statement appeared more dovish than people were anticipating.”
The rupee gained for a third day, rising 0.2 per cent to 67.0375 a dollar as of 11:12am in Mumbai, according to prices from local banks compiled by Bloomberg. It rose to 66.9975 earlier, the strongest level since July 15. Foreign funds have been net buyers of $1.3 billion of Indian stocks this month, set for the biggest purchases since March. Holdings of rupee-denominated debt have climbed 75.5 billion rupees ($1.1 billion) in July.
The yield on Indian government notes due January 2026 dropped three basis points to 7.22 per cent, set for the biggest drop since July 13, prices from the central bank’s trading system show. The yield has declined 23 basis points this month, the most since September, with its close on Monday being the lowest for a benchmark 10-year security since June 2013.
Bonds have rallied on hopes a revival in monsoon rains will aid crop output and help contain food costs, improving the overall inflation outlook. Mounting speculation that a successor to Governor Raghuram Rajan will be more aggressive in cutting interest rates has contributed to the gains. Japan announced plans Wednesday for more than 28 trillion yen ($267 billion) in economic stimulus amid efforts to prop up its economy.
“Bond yields have scope to fall further as India is among the few countries following conventional policies and offering very attractive yields,” Bameta said, adding that India’s “risk profile, based on current account deficit and fiscal deficit, has also improved, which means the foreign inflows will continue.”
The cabinet decided late Wednesday to eliminate an additional 1 per cent charge on interstate sales that was included in a constitutional amendment bill to create the GST. The opposition had argued that the additional levy would undermine the goal of creating a single market among India’s 1.3 billion people. Modi’s party has indicated it will push the measure next week for discussion and possibly a vote before the current parliament session ends Aug. 12.
