Rupee gains as RBI flags concern on inflation

The rupee halted two days of losses on speculation the central bank will raise borrowing costs for a fifth time this year to combat inflation that has held near 10% since February.

The rupee was little changed at 46.9050 per dollar at the close of trade on Wednesday. It traded at 46.9150 on Tuesday, the weakest level since July 26.

Containing the increase in prices “may have to receive precedence,” the Reserve Bank of India said on Tuesday. The rupee also rose after its 0.7% drop over the past two days offered exporters a more-favourable exchange rate to convert earnings.

“The possibility of further rate increases could attract capital flows,” said Krishnamurthy Harihar, a treasurer at FirstRand in Mumbai. “These are probably good levels for exporters to sell.”

The benchmark wholesale-price index advanced 9.97% in July from a year earlier, after a 10.55% gain in June, the commerce ministry said August 16. The RBI next reviews its policy rates on September 16. It last raised interest rates on July 27. The reverse-repurchase rate, at which it drains cash from banks, is at 4.5%, while the repurchase rate, which it charges on overnight loans, is at 5.75%.

Offshore forward contracts indicate the rupee will trade at 47.61 to the dollar in three months, compared with expectations for a level of 47.62 on Tuesday. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.