Indian Rupee to Strengthen 11 Percent

India’s rupee will strengthen 11 percent to 43 per dollar by mid-2010 as accelerating inflation prompts the central bank to raise interest rates, according to Calyon, the investment banking unit of Credit Agricole SA.“Higher interest rates is one of the main reasons why we are more bullish than the consensus on the rupee,” Sebastien Barbe, a Hong Kong-based strategist at Calyon, wrote in a research note published today. “Rising inflation should also incite the Reserve Bank of India to tolerate more currency appreciation.”The rupee traded at 47.52 per dollar at yesterday’s close in Mumbai, up 2.4 percent from the start of the year. The currency may appreciate to 45.95 by the end of the second quarter of 2010, according to the median estimate of 22 analysts in a Bloomberg News survey.India’s central bank cut interest rates six times from October 2008 to April 2009 to shield India’s $1.2 trillion economy from the worst global recession since the Great Depression. The country may need to exit from an accommodative monetary policy earlier than other economies, Reserve Bank of India Governor Duvvuri Subbarao said at a banking seminar in Istanbul yesterday.“In view of incipient inflationary pressures, policy rates in our case may have to be tightened ahead of those in advanced economies,” he said. “The resultant larger interest differential may attract larger capital inflows.” Inflation Outlook Subbarao left the reverse-repurchase rate unchanged at 3.25 percent at the last meeting on July 28 and kept the repurchase rate at 4.75 percent. The next policy announcement is on Oct. 27.An official at India’s Planning Commission indicated last month that inflation is moving within its expectations and there was no need for a reversal in policy anytime soon.“Our objective is that we should end the year with inflation at a reasonable or comfortable level,” Montek Singh Ahluwalia, deputy chairman of the Commission, said on Sept. 24. “Until there’s a change in that, there is no reason to fear reversal of policy.”India’s wholesale prices rose for a third straight week, climbing 0.83 percent in the period to Sept. 19 from a year earlier, the Commerce Ministry said on Oct. 1. Prices increased 0.37 percent in the previous week.