INDIAN RUPEE GAINS ON HOPE OF FRESH FOREIGN INFLOWS

Despite market players betting on the central bank cancelling bond auctions for the coming week, the Reserve Bank of India (RBI) announced the auction of two dated securities worth Rs 7,000 crore between Dec 7 and 14.
Though this announcement dampened the sentiment on the bond market, it drew positives from low inflation data and expectations of a rate cut by the US Federal Reserve. Yield on the 10-year benchmark bond, the 7.99% bond maturing in 2017, ended flat on Friday from its previous close at 7.87%.
The rupee rose on Friday on hopes of foreign inflows bolstering sentiment for the local unit. The rupee ended the day at 39.39/40 against the dollar, up from Thursday’s close of 39.48/49. While there were some foreign inflows, a huge private equity deal by a British bank resulted in the sale of around $500 million, which caused the rupee to rise.
Hopes of a rate cut by the US Fed made investors shy away from buying dollars at current rates. The rate cut will result in a spate of fresh inflow to developing economies, resulting in a rise in the rupee. After opening at 39.43/44 levels, foreign inflows caused the rupee to rise to an intra-day high of 39.38. There was intervention by the central bank at this point, with nationalised banks buying dollars.