Saturday, October 16, 2010

Rupee surges 5.1% in a month

The rupee, which broke through the 43 barrier in intra-day trade on Friday, has surged 5.1 per cent in the past month, putting the Reserve Bank in a dilemma and hitting exporters, especially IT outrsourcers, hard.

The rupee appreciated to 44.10 per dollar on Friday, a rise of 33 paise from October 9. The currency climbed to as much as 43.9650, its strongest level since August 2008. "The RBI is in a dilemma. If the RBI buys dollars from the market to stem the rupee rise, it will add to the inflation level. When the RBI buys dollars, they have to release an equal amount in rupees. This will push up inflation at a time when the RBI and the government are trying to bring prices under control," said a forex dealer with a bank. The Indian rupee completed a seventh weekly gain, the longest winning streak since April 2009, on speculation Coal India IPO will attract huge overseas funds. The currency touched the strongest level in more than two years as the state-owned company plans to raise as much as Rs 15,130 crore ($3.4 billion) next week. Nearly half of the IPO will go to institutional buyers. Foreign funds are expected to participate in this IPO in a big way.

The RBI may intervene to curb gains in Asia's best-performing currency in the past month to shield exporters, deputy governor Subir Gokarn said on Friday. "If the RBI doesn't intervene, the rising rupee will hit exporters. If it intervenes, it will add to the inflationary pressure. The rupee is appreciating due to the Coal India IPO. We have to see whether the RBI intervenes, with inflation at current levels," said a dealer.
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