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Rupee races to 48.29 on burst of NRI flows

Mumbai, Nov. 7: Propelled by generous foreign inflows and a surprise 50 basis-point cut in rates by US’ Federal Reserve, the rupee today raced to a nine-and-a-half month high against the dollar to close at 48.29.

The currency shot above the 48.30-threshold to 48.28/29 after hitting a low of 48.34 earlier in the session, and 48.33 on Wednesday. Today’s advance takes the total gain notched up to 1.60 per cent from the second week of May, when it plumbed 49.08. Dealers say export earnings and NRI inflows turned the tide.

Many in Mumbai’s inter-bank forex market feel lower rates in the US could prompt NRIs with dollars stashed away abroad to bring their money, tempted by fatter returns that India promises. Big banks that usually go short on dollars on Wednesdays and buy them back later in the week could benefit from the weekend swap differential of two paise (0.02 rupees) per dollar.

The rupee’s rise was also fuelled by dollar’s weakness against other currencies. The American unit fell to three-month lows against the euro and against an index of currencies after the US central bank cut its key fed funds rate by 50 basis points to 1.25 per cent. Foreign bourses expected a more modest 25-basis point cut, instead of 0.5 per cent announced by the Fed. The target for short-term interest rates was trimmed half a percentage point to a new 40-year low at 1.25 per cent.

Gilts sparkle

Dealers in the government securities (gilts) market expect the Reserve Bank to reduce the repo rate further. The feeling is that Wednesday’s rate cut by the Federal Reserve will make it harder for the RBI to resist calls for a cut in the key money market barometer. “We cannot remain in isolation for long,” a dealer said.

According to market watchers, with the central bank having gone in for a bank rate cut, another repo rate is imminent. RBI governor Bimal Jalan had hinted as much, long before Greenspan and his colleagues gave America another dose of monetary easing.

Dealers said the yield-to-maturity on the benchmark 10-year government security quoted at 6.80 per cent, much lower than in was in the recent past.

Dealers attribute the rally in government securities primarily to the rate cut announced by the Federal Reserve.

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