Global Cheer As US Stimulus To Continue

Mumbai: In the most dramatic U-turn in the history of India's currency and stock markets, the rupee and the sensex extended their scorching-hot streak on Thursday. The rupee made its second-highest gain ever of 161 paise against the dollar while the sensex recorded its second-sharpest rise of 684 points in four years to close
at a 34-month high of 20,647 after the US Federal Reserve dropped plans to cut back its fiscal stimulus—a plan which had sent emerging markets into a free fall since May.
    A day after the US Fed surprised markets by deciding to continue with its $85 billion-amonth bond buyback, a wave of optimism swept global markets from Indonesia to Turkey and South Africa to Brazil with stocks and currencies gaining across the board. The Indian rupee, which was the second best performer after the Indonesian Rupiah on Friday, appreciated to 61.78 from its previous close of 63.39.Foreign institutional investors scrambled to buy stocks, pumping in Rs 3,544 crore in a single day, one of the highest ever, fuelling a 2.43% increase in the sensex.
    Ben Bernanke, chairman of the US Federal Reserve, chose to continue with the stimulus fearing that higher interest rates in the US could trip growth. The decision has ensured that there won't be any disruption through withdrawal of stimulus at least until December.
    "If there are measures to increase liquidity, they would not be positive for the exchange rate. However,since the overall sentiment has turned positive, I do not expect any major impact," said Ashutosh Raina, head of forex trading at HDFC Bank.
Home, auto loans get costlier as SBI springs surprise, hikes rates T he State Bank of India on Thursday hiked its benchmark rates and revised the pricing of retail loans, making home and auto loans costlier. It has also raised its deposit rates to increase the pace of fund mobilization. A Rs 30 lakh home loan from SBI will now cost 10.1%, while loans for a higher amount will attract 10.3% interest rate. In case of auto loans, the interest for existing borrowers will go up from 10.45% to 10.55%, while new customers will pay 10.75%. It is perhaps the first time that existing borrowers will pay a lower rate than new customers. The bank's decision, coming a day ahead of the RBI's mid-term policy review, has surprised other lenders. P 21 Banks, auto drive sensex rally
    He added that there was scope for further appreciation of the rupee.
    "There is a strong support level at 60.50 and we could see the rupee moving into that range," he added.
    The rally in the sensex was driven by banks, auto and real estate companies. These stocks are described as interest rate-sensitive as their earnings are directly affected by a rise in interest rates. One of the main strategies used by the Reserve Bank of India to prevent the rupee from depreciating is to raise interest rates. The rupee rally gives RBI governor Raghuram Rajan some wiggle room in framing his first monetary policy review on Friday—particularly on two fronts, inflation and growth.
    The rupee has recovered at a much faster pace than it has fallen. The local currency has gained by nearly 8% in the last 11 trading sessions. The highest gain recorded by the rupee was on August 29—a day after the RBI announced a special window to lend dollars to oil companies. The rupee had gained by Rs 2.23 paise then as oil companies, which account for 40% of dollar demand, were no longer required to buy dollars only from the market.
    The RBI's move to lend dollars was seen as a bit of a gamble. It was under the assumption that the rupee would firm up in future and oil companies could then buy dollars cheap and return them to the RBI. With the sharp appreciation in recent days the gamble appears to have paid off. But some fear that this sudden largesse might breed complacency as reforms to correct the economy's fundamentals are yet to take off. For Indian traders this would mean that the problem of dealing with a volatile exchange rate has merely been postponed; exporters are not rushing in to sell their dollars as they know that there could be a fresh round of uncertainty in three months.