Rupee trims gains after reaching 2009 high

>> Friday, May 22, 2009

The rupee rose past 47 per dollar to a five-month high on Friday before trimming gains on suspected central bank intervention and dollar buying by refiners, but still notched its biggest weekly gain in 13 years.

The partially convertible rupee ended at 47.11/12, after strengthening as far as 46.90, its highest since Dec. 19, and stronger than Thursday's close of 47.37/38.

It rose 4.9 percent over the week, its biggest weekly gain in 13 years according to Reuters data, after the Congress-led coalition's resounding election win raised expectations for economic reforms and greater foreign investment.

The rupee's sharp gains were slowed by dollar buying by state-run banks, suspected to be acting on behalf of the Reserve Bank given the sharp gains seen this week, traders said.

"There was a bit of RBI (central bank) buying, though I think some banks unwinded morning's long rupee positions," a senior trader with a private-sector bank said.

Dealers said crude refiners also bought dollars. Oil, India's biggest import, rose to a six-month high above $62 a barrel this week.

Analysts expect the rupee to strengthen further. The median forecast in a Reuters poll this week was for the rupee to end 2009 at 46.25, helped by foreign inflows.

Foreigners have bought more than $3 billion of local equities so far this month, including $1 billion since the election results. The inflow is a key driver for the rupee.

The BSE Sensex rose 1.1 percent on Friday, taking their gains for the post-election week to 14.1 percent, its biggest weekly rise in 17 years.

One-month offshore non-deliverable forward contracts were quoting at 47.17/27, close to the onshore spot rate.

Source - Economic Times