Indian Central Bank to Cap Rupee Gains, Essar's Paramsivam Says

Indian Central Bank to Cap Rupee Gains, Essar's Paramsivam Says

http://www.bloomberg.com/apps/news?pid=20601091&sid=ap41Oo1EETXo&refer=india

By Sam Nagarajan


The seal for the Reserve Bank of India Aug. 8 (Bloomberg) -- India's central bank will cap rupee gains after a rally to a nine-year high curbed export earnings, said N.S. Paramsivam, head of treasury at Essar Group, which owns oil, steel and shipping businesses.

The Reserve Bank of India, which has slowed inflation to near a 13-month low by raising interest rates, may shift focus to stopping the currency from gaining beyond 40.20 per dollar in the next month, said Paramsivam. The rupee reached 40.215 on July 24, the highest since May 1998, eroding the value of overseas shipments that account for about a third of the economy.

``With inflation fairly under control, they're looking to intervene in the market more aggressively,'' said Paramsivam, who oversees foreign-exchange operations at the Mumbai-based group. ``They will now care more about growth and protect the competitiveness of exporters.''

Growth in exports slowed to 13 percent in the six months through June, from 21 percent in the same period last year, trade ministry data show. India's top four software exporters last month said a rising rupee curbed earnings.

The rupee, the best performer this year among the 10 most- active currencies in Asia, traded at 40.4150 against the dollar yesterday, according to data compiled by Bloomberg. It climbed 9.5 percent this year.

``The rupee appreciation has impacted exports,'' Trade Minister Kamal Nath said yesterday. ``We will be looking at measures to arrest'' any slowdown in export growth.

More Intervention

Foreign-exchange reserves grew by $12 billion in the four weeks through July 27, twice as fast as in June, suggesting the central bank stepped up dollar purchases. Reserve Bank Governor Yaga Venugopal Reddy announced measures to mop up cash from the banking system last week, accumulating more rupees it can sell to stem gains.

Inflation was at 4.36 percent in the third week of July, remaining below the central bank's 5 percent target for the past two months. Reddy refrained from raising the key interest rate at the last meeting on July 31, after increasing it seven times since October 2005, because higher rates may add to pressure on the currency to appreciate.

`Crucial Question'

India's economy expanded 9.4 percent in the year ended March 31, the fastest pace in almost two decades, attracting global funds and companies. Net purchases of Indian shares by overseas investors this year reached $10 billion, exceeding all of 2006, data provided by the Securities & Exchange Board of India show.

The benchmark stock index touched a record last month before slumping more than 5 percent on concern global growth will slow following losses in subprime mortgages in the U.S.

``The crucial question is for how long will these inflows last,'' Paramsivam said. He expects the rupee to decline in coming months, without giving a forecast.