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Rupee jumps to 59.59 per dollar on hopes of clear majority for NDA

LiveMint logoLiveMint 13-05-2014 Ashwin Ramarathinam

Mumbai: The Indian rupee on Tuesday opened higher against the dollar on increased optimism that India will have a stable government after the election results due on Friday.

At 9.08am, the rupee strengthened 0.76% to 59.59 per dollar compared with its previous close of 60.05, its strongest rise since 25 April.

Some of the exit poll surveys released on Monday after the last phase of polling gave the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) a simple majority in the Lok Sabha.

“The market is now more confident about a stable government. We have seen a lot of inflows from foreign funds and exporters in the last two days. How high rupee will go will depend on when the Reserve Bank of India (RBI) stepped in to buy dollars” said a dealer with a French Bank.

He added that he expects the rupee to move in the of range 59.40 to 60 per dollar.

RBI has been actively mopping up dollars from the markets to avoid a sharp appreciation in the rupee, said dealers. Data released on Monday showed that RBI bought dollars worth $7.78 billion in March. The data which comes with a lag of two months, showed that RBI purchased a total of $8.75 billion in the spot market in March and sold $970 million which meant that the central bank pulled out a net $7.78 billion from the local foreign exchange market.

The dollar buying by the central bank was the highest in three months and the first time since December when the RBI had bought a net $3.48 billion from the forex market.

So far this year, the rupee has gained 3.44% against the dollar, while foreign institutional investors have pumped in $5.7 billion in the local equity markets.

Meanwhile, RBI’s dollar purchases has meant relatively comfortable liquidity conditions, as purchase of dollars infuses rupee into the market. As a result, demand for government bonds has remained strong, pushing yields lower, say traders.

At 9.15am, the yield on India’s 10-year benchmark bond was trading at 8.72%, flat compared with its previous close. Yields continue to hover near two-month lows.

Bond yields and prices move in opposite directions.

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