International investment in India’s bonds will rise
this year as policy makers rein in inflation, boosting the rupee after 2011’s
16 percent slump, according to the most-accurate
forecasters for the currency.
The rupee will strengthen 4 percent
to 51 per dollar by the end of 2012, according to ING Vysya
Bank Ltd., the local unit of the biggest Dutch financial services company and
the most-accurate forecaster as measured by Bloomberg Rankings in the six
quarters through December. The currency will gain 5.1 percent
to 50.50, according to Oversea-Chinese Banking Corp.,
which ranked second.
International investors boosted their ownership of
rupee-denominated notes by $1.6 billion this month to $27.7 billion after
government data showed food prices fell for the first time on record in the
week ended Dec. 24. The 8.20 percent yield on the
nation’s 10-year securities is more than four times that on U.S. Treasuries
(USGG10YR) and almost five percentage points more than similar-maturity Chinese
debt.
Global funds bolstered holdings of India’s bonds by
$3.9 billion last month, the biggest increase on record, as the central bank
said in a statement on Dec. 16 that policy makers’ are likely to reverse the
monetary policy cycle” to support growth after seven interest-rate increases in
2011. The inflows have contributed to a 1.6 percent
advance in the rupee this month, the best performance among Asia’s 10
most-traded currencies.
The rupee, which gained 0.4 percent
to 52.33 per dollar on 9 January in Mumbai, will end 2012 at 50. The currency
will return 15 percent, including interest, the
strategists predict. That compares with estimated total returns of 18 percent on Brazil’s real, 10 percent
on Russia’s rouble and 4.1 percent for China’s yuan.
India’s benchmark government bonds have rallied
this year, after slumping in 2011, on speculation inflation is slowing in
Asia’s third-biggest economy. Wholesale prices rose 7.40 percent
in December from a year earlier, the least in two years, according to the median
forecast of 15 economists in a survey before government data due on Jan. 16.
India’s benchmark Sensitive Index (SENSEX) of
shares has gained this year on speculation policy makers will reduce borrowing
costs. The index, which slid 25 percent in 2011, has
rallied 2.9 percent in 2012. The Reserve Bank will
cut its 8.5 percent benchmark repurchase rate by 150
basis points in 2012, according to Goldman Sachs Group Inc.
Barclays Capital, the third-most accurate rupee
forecaster tracked by Bloomberg, predicts the currency will climb 11 percent to 48 by year-end. The rupee will advance 3.2 percent to 51.4 this year, according to Westpac Banking
Corp., ranked at the same level as Barclays among Bloomberg’s most-accurate
rupee forecasters.