Rupee soared to close at an 11-month high of 58.83 against the dollar riding high on the Narendra Modi-led win by the NDA at the national elections.

Sentiments of a new government taking over next week raised expectations of a pick-up in investment cycle helping the Indian currency opened at 59 against the dollar from its previous close of 59.28.

The domestic unit breached the 58 levels to zoom to 58.62 per dollar as the heavy capital flows into the domestic equity markets sending the Sensex to a peak of over 25,000 levels.

BSE-benchmark Sensex shot up by 1,400 points to reach a lifetime high of 25,340 points only to recover but ended 216 points (0.9 per cent) higher at 24,121.74 points.

Persistently heavy dollar inflows have helped the rupee surge to 58 levels from 60 per dollar during the week as foreign investors invested on hopes of a pro-investment NDA government at the Centre.

Even with an NDA victory, 58 levels for the rupee are not sustainable and RBI will try to mobilise its reserves at these levels. We will see the rupee trade in the range of 58-60 levels in the medium term, treasury officials said.

Shubhada Rao, Chief Economist at Yes Bank said, “With election related uncertainty now behind us, FII inflow into domestic markets is likely to remain supportive…While we continue to expect US Dollar per rupee close to 58 levels by Dec 2014, we now expect the currency to largely trade in the range 59-60 in H1 FY15 vis-à-vis our estimate of 60-61.”

Call rates, G-Sec yields rise

The overnight call money rate (the rate at which banks borrow money from each other to overcome short-term liquidity mismatches) closed higher at 7.50 per cent from its previous close of 7.05 per cent.

The yield on 10-year benchmark 8.83 per cent bond, maturing in 2023, jumped to 8.83 per cent from Thursday’s close of 8.78 per cent. Bond prices declined to Rs 99.97 from Rs 100.30. Bond yields and prices move in opposite directions.

(This article was published on May 15, 2014)
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