China's Yuan bolsters Rupee to six year high

By agencies   |   Friday, 22 July 2005, 07:00 Hrs
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MUMBAI: The Indian Rupee jumped to a fresh six-year high against the Dollar on Friday, bolstered by China's Yuan revaluation the previous day, but quickly gave up its gains on aggressive central bank intervention.

The Rupee climbed 0.27 per cent at the start of trade to touch 43.1150/1350, its highest since mid-1999, but dealers said dollar-buying by state-run banks, who act for the Central Bank in the market, had brought it down from the peak.

"Two state-run banks were there at 43.18 per Dollar levels and they have driven it further down," said a senior currency trader at a private sector bank. "We suspect the buying of Dollars is on behalf of the central bank."

China's long-awaited revaluation of the Yuan by 2.1 per cent sent Asian currencies broadly higher against the dollar.

India's Central Bank said however its exchange rate policy was unchanged after the move and the governor has said repeatedly in recent months that a Yuan revaluation would have less of an impact on India than other Asian countries.

Governor Yaga Venugopal Reddy had told in an interview in May that while trade with China was growing, it was still a small portion of India's total external trade and although there were few areas where the two compete, a Yuan revaluation could have a marginally positive effect on India's trade account, which is in deficit.

Trade between India and China totaled more than $13 billion in the year to March 2004, nearly three times India's trade with Japan.

"We believe India's trade linkages with China do not argue for a substantial rupee response to the Yuan move," said Siddharth Mathur, strategist at JP Morgan in Mumbai.

He said however China's move was likely to put upward pressure on Asian currencies against the dollar, in particular the Japanese Yen, which would feed through to the Rupee.

In addition, the market appeared to have been broadly long of Dollars when China announced the news, meaning traders had scope to sell the greenback further in the short term.

"But any Rupee move in response to Chinese currency regime change is likely to be met by the stern restraining influence of the Central Bank," he said.

On the stock exchange, textile exporters gained on the expectation they would benefit from the Yuan revaluation, with Arvind Mills Ltd. up 2 per cent and Century Textiles Ltd. up 2.8 per cent.



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