Rupee rises to 5-month high on risk appetite

The rupee on Friday rose to nearly a five-month high after the Government retained its FY13 market borrowing programme for the second half of FY13 and ruled out additional borrowings during the rest of the year. The Government on Thursday said that it would borrow Rs. 2 trillion via bonds in the second half of FY13, which begins on October 1. That is in line with the budget estimate. Economists are still skeptical that the Government will be able to meet its fiscal deficit estimate of 5.1% of GDP. Already, the Government's subsidy burden is running higher than budget estimate. Average borrowings via bonds sales will be Rs. 120-130bn per week between October and February. The Government is due to sell Rs. 150bn of bonds this week, taking its borrowings in the first six months of FY13 to Rs. 3.7 trillion. Meanwhile, Fitch Ratings has cut its 2012 growth forecasts for India to 6% from 6.5%. It has expressed concern over the Government's economic and investment policy weighing down business confidence. It sees budget deficit at 8.5% of GDP. Fitch has also cut its forecast for GDP growth in the major advanced economies by 0.2% in 2012 (to 1%) and 0.3% in 2013 (to 1.4%). The global debt ratings agency has revised down its expectations for the eurozone to a 0.5% contraction in 2012 and just 0.3% growth in 2013. Fitch's US GDP forecast remains unchanged at a growth of 2.2%/2.3%. In overseas currency trades, the euro rose for a second day after Spain said it will meet its budget deficit target for this year and cut estimate for next year. The 17-nation currency headed for a second weekly decline versus US dollar. The Australian dollar advanced on speculation that Chinese authorities will add to stimulus measures. The rupee is headed for its strongest quarterly gain since 2009 after FII inflows accelerated in the wake of the Government's decision to unveil a spate of economic reforms to boost GDP growth. FII inflows into Indian equities totaled US$3.5bn this month through Sept. 26, the biggest increase since February. The rupee is up ~5.% this quarter. This is the biggest three-month gain since June 2009 and the best performance in Asia. It touched 52.5675 earlier, the strongest level since April 30, and has gained 5.4% in September. The rupee has rebounded 8.8% from a record low of 57.3275 per dollar touched June 22. Meanwhile, the BSE Sensex is up 7.9% this month, headed for the biggest gain since January. The Sensex has rallied 4.3% since Sept. 13 after Prime Minister Dr. Manmohan Singh ended a freeze on diesel prices and permitted FDI in multi-brand retail and aviation sectors.