Rupee gains as exporters sell dollars; bonds rise

The rupee had the first gain in five days on speculation exporters took advantage of the currency’s decline to convert their foreign-exchange earnings.

The currency gained the most since December 24 after its drop to a seven-week low earlier today prompted Companies that sell goods overseas to increase dollar sales, said LV Prasad, chief currency trader at IndusInd Bank Ltd in Mumbai. A weaker local currency boosts the profit of Companies from overseas sales. The rupee also rose on speculation the central bank bought it to curb market volatility.

“There was some talk about the central bank intervening to limit the rupee's losses, which triggered widespread dollar selling,” Prasad said. “Exporters converted their foreign- exchange earnings as the rates were attractive.”

The rupee rose 0.2% to 39.465 per dollar in Mumbai, according to data compiled by Bloomberg. It earlier dropped to 39.775, the lowest intraday level since November 29. The rupee lost 0.6% on Monday, the most since August 16.

India’s central bank will buy or sell foreign exchange to curb volatility in the currency market, based on the nature of capital inflows, Reserve Bank of India governor Yaga Venugopal Reddy said January 3.

The rupee fell earlier on speculation the plunge in global stocks is spurring overseas investors to take money out of the country.

The bonds gained, pushing yields to the lowest in 13 months, after a plunge in shares forced the nation’s stock market to halt trading, stoking speculation the central bank will begin cutting interest rates.

The yield on the security due 2017 declined the most in more than a week on bets a plunge in global stocks will prompt the US Federal Reserve to increase the pace of rate cuts, spurring local policy makers to ease borrowing costs for the first time since August 2003. Bonds climbed as inflation near a five-year low may give the Reserve Bank of India scope to reduce rates.

“The global financial Markets situation has heightened expectations that rates will have to be lowered,” said S Srikumar, chief of fixed-income at state-owned Corporation Bank in Mumbai.