Rupee vaults above 42/dlr, policy eyed

Enlarge Photo A Kashmiri money changer Nissar Ahmad displays Indian rupee notes in Srinagar July 21, 2008....

Thu, Jul 24 10:32 AM

MUMBAI (Reuters) - The rupee jumped beyond 42 per dollar to a two-month high on Thursday as falling oil prices eased concerns about the country's trade deficit.

At 9:42 a.m., the partially convertible rupee was at 41.84/85 per dollar, its highest since May 12 and 0.6 percent above Wednesday's close of 42.09/10. It has climbed 2 percent in the last two days.

"It is just sentiment and offshore-related flows but there should be some importer buying coming in at these levels," said a senior dealer at a private bank.

Oil prices fell to a seven-week low below $125 a barrel on Thursday amid a view U.S. energy demand has reached a tipping point, sending investors back into Asian stocks for the fourth consecutive day.

India imports most of its oil and the soaring price of the commodity has put pressure on the country's trade deficit.

The government won a vote of confidence in parliament late on Tuesday, ensuring the survival of the ruling coalition and of a civilian nuclear deal with the United States.

Foreigners have sold more than $7 billion in stocks so far in 2008 and analysts said the government's win meant it would push on with long-awaited banking reforms which may attract capital inflows and push the rupee higher.

One-month offshore non-deliverable forward contracts were quoted at 42.18/42.28 per dollar, weaker than the onshore rate.

Analysts were also eyeing a policy review on July 29.

Standard Chartered Bank expects the central bank in 2008 to raise its lending rate by 50 basis points, banks' cash reserve requirements by 100 basis points and its borrowing rate by 100 basis points.

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