By Khushita Vasant
At 1200 GMT Latest Change USD/INR 56.61 -0.19 8.79% 2021 Bond 8.38% +2BPs 8.15% 2022 Bond 8.18% +5BPs Call Rate# 8.20% +10BPs Forward Dollar Premium/Discount* June 3.195 -0.04 *Forward Dollar Premium/Discount are midpoints of bid-offer spreads #Friday's call rate is for four days and 10 bps higher than Thursday's overnight rate
MUMBAI--The Indian rupee rose against the U.S. dollar Friday, helped by better risk sentiment and hopes the government may water down a controversial set of rules to fight tax evasion.
The rupee's rise was in line with gains in regional currencies after European Union leaders unexpectedly came up with measures to combat the bloc's sovereign-debt and banking problems.
The dollar was at INR56.61 late Friday in Asia, a level not seen since June 18. It was at INR56.80 late Thursday.
The rupee also drew strength from gains in local shares. The Bombay Stock Exchange's benchmark Sensitive Index finished 2.6% higher at 17,429.98.
Late Thursday, the government hinted that it could dilute provisions of the widely criticized General Anti-Avoidance Rules. Fear over the tax rules hurting local investments led several foreign investors to review their presence in the country, causing shares and the rupee to lose much value in recent months.
The development assuages investor sentiment, especially after Prime Minister Manmohan Singh said Wednesday the government needs to take steps to revive growth and win back investor confidence.
"Sentiment is positive, disappointment is turning into hope," said Moses Harding, head of global markets at IndusInd Bank.
Mr. Harding said the rupee's fall in recent months was much more severe than its regional peers due to exaggerated market concerns, which should reverse now. He expects the rupee to trade in a 55-56 range in the very near term and thereafter strengthen to settle in a 52-54 band.
A recovering rupee and easing global crude oil prices could provide room for the Reserve Bank of India to cut rates, he added.
However, larger concerns of rupee weakness due to India's widening current-account deficit would continue to pressure the currency.
Reserve Bank of India data Friday showed India's current-account deficit in the January-March period widened to $21.7 billion from $19.6 billion in the previous quarter.
In the sovereign-debt market, bonds finished lower in thin trade as improved sentiment led investors into riskier stocks and currencies.
Sentiment improved after EU leaders announced an opening up of access to two bailout funds for euro-zone countries not already receiving assistance. This would help stabilize volatile markets.
The 8.79% 2021 note ended at INR102.59, compared with INR102.71 at Thursday's close. The tightly held new benchmark 8.15% 2022 bond fell to INR99.81 from INR100.12.
Bond prices were also weighed after the government sold INR150 billion worth of bonds at higher-than-expected cutoff yields.
"The increased foreign investment limit in government bonds would also dilute the benefits of the RBI's OMOs [open market operations--bond buybacks]," said a trader with a state-run bank.
The government Monday increased the cap on foreign institutional investments in government bonds to $20 billion from $15 billion to attract foreign capital.
Write to Khushita Vasant at khushita.vasant@dowjones.com
(END) Dow Jones Newswires
June 29, 2012 10:06 ET (14:06 GMT)
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