Rupee at 2-week high as foreign inflows brush off Brexit woes

THE rupee climbed to a two-week high on Monday as a pick-up in foreign inflows lent credence to the view that Britain’s vote to exit the European Union won’t have a lasting effect on demand for Indian assets.

Overseas holdings of the rupee debt increased by a net Rs 1,050 crore ($156 million) last week, the biggest jump since April, data from National Securities Depository showed. They fell in the previous two weeks as the investor anxiety around Brexit sapped appetite for emerging-market assets.

Indian stocks surged to an eight-month high on Monday as benchmarks gained across Asia amid expectations that global central banks will add to monetary stimulus to counter any contagion from Brexit.

The rupee rose 0.1% in a fourth day of gains to 67.2650 a dollar, according to prices from local banks compiled by Bloomberg. It climbed to 67.15 earlier, the strongest level since June 17. The currency pared its advance as importers were seen buying dollars, according to Rohan Lasrado, Mumbai-based head of foreign-exchange trading at RBL Bank.

“Brexit has lowered the odds of an interest-rate increase by the Federal Reserve, which is another positive for the Indian currency,” said Samir Lodha, managing director at QuantArt Market Solutions in Mumbai.

The rupee jumped 1% last week, the most since early March. It is down 1.7% this year. The Indian economy will be among the least impacted in Asia given its relatively low exposure to trade, Morgan Stanley economists wrote in a June 26 report. While India's economy isn’t “insulated” from global events, it “has created good enough buffers to tackle to any volatility created by the global headwinds,” HR Khan, whose term as Reserve Bank of India’s deputy governor ended on Monday, said in an interview.

Sovereign bonds fell, with the yield on notes due January 2026 rising 1 basis point to 7.43%, prices from the central bank’s trading system show.

It dropped 6 basis points last week, the most since the middle of March. Bloomberg