Rupee hits new three-month high on stock rally

The Indian rupee extended gains against the US dollar to touch a new three-month high, buoyed by strong gains in the local stocks and a weak dollar in the overseas markets. The partially convertible Indian currency was last seen trading at 45.8450 per dollar, stronger than 46.14/15 at close on Thursday. It earlier touched 45.8250, its highest level since June 21. The rupee, which was headed for its biggest weekly advance since July, climbed to a three-month high after the RBI yesterday raised its benchmark interest rates for the fifth time this year.



The BSE Sensex and the NSE Nifty both gained 4% each in the week to end at 19,594 and 5,884, respectively after crossing 19,600 and 5,900. Foreign Institutional Investors (FIIs) have pumped more than US$15bn into Indian equities so far this year, according to stock exchange data. They have more than doubled holdings of bonds this year to a record US$16.5bn, according to market regulator SEBI. The India economy grew by 8.8% from a year earlier in the second quarter.

Yields on five-year government debt climbed to a 23-month high of 7.78% after the RBI yesterday raised the repurchase rate to 6% from 5.75% and the reverse repurchase rate to 5% from 4.5%. But, the RBI on Thursday signaled that the tightening cycle may be nearing an end. Meanwhile, the dollar index, which tracks the US currency against six major rivals, was down 0.43% at 80.90 after touching a low of 80.86. It opened at 81.32 and touched a high of 81.35.