Rupee rose 1.49%, the biggest weekly gain since November, after the government’s decision to allow oil refiners to adjust diesel prices triggered hopes that a resultant cut in subsidies would rein in fiscal deficit and give room for RBI to cut rates.
Rupee breached 54 level to end at the day’s high of 53.70 on Friday. The currency has gained 6.74% from the all-time low of 57.32 in June, but is still 5.92% lower than 50.52, its high for 2012-13.
“The measures are indeed adding to the buoyancy of the stock market and rupee. Foreign flows have been regularly increasing over the last 2-3 weeks,” said Mohan Shenoi, head of treasury at Kotak Bank. “I won’t be surprised if rupee hits 53.50 level. But rupee would remain in a range of 53-56 for 3-6 months,” he said.
On Thursday, the government had said oil refiners will be allowed to hike diesel prices every month. But the government raised the number of subsidised cooking gas cylinders to nine from six earlier. Market participants feel the government’s measures show it is on track to keep deficit under control. Deficit for 2012-13 is pegged at 5.3%.
Global rating agencies had warned India may loose investment grade rating if the government does not push through key reforms which includes reduction in fuel subsidies. In December, Fitch ratings had said risks to the investment grade rating still persist due to slower economic growth and rising subsidies.
In September, the government had hiked diesel prices for after 14 months in a bid to reduce subsidies and avoid a rating downgrade. Market participants said the government’s latest move on fuel prices may allay fears over the rating downgrade and inspire foreign investors to increase investments.
So far in January, FIIs have poured in $2.76 billion in shares and bonds. Dollar inflows from FIIs totalled $20 billion since April.
Bonds fall as focus shifts to RBI on rate cut
Mumbai : Government bond yields came off lows to end higher on Friday as dealers chose to focus on RBI’s rate decision later this month and took profits on recent gains triggered by the government’s move to allow fuel retailers to raise prices.
Benchmark 10-year bond yield ended 2 bps higher at 7.86%. It fell to 7.81% earlier in the session. Reuters