* Rupee ends at 54.3850/3950 per dollar vs 54.69/70 on
* Diesel move to shrink subsidy burden; reduce fiscal
* INR likely to move in 53.60-54.50 range in the near term -
By Swati Bhat
MUMBAI, Jan 18 The Indian rupee strengthened to
its highest level in more than a month on Thursday as the
government's move to partially deregulate diesel prices boosted
hopes the widening fiscal deficit would gradually come down.
State-run Indian oil marketing companies can now raise
diesel prices in line with increases in global crude oil prices,
Oil Minister Veerappa Moily said, a move that could help the
government reduce its vast subsidy bill.
However, Moily said the government cannot abruptly put an
end to diesel subsidies.
Traders said a gradual rise in diesel prices would also
reduce its inflationary impact and in the medium term bring down
the fiscal deficit but oil marketing companies are yet to
announce any hike in prices.
"Rupee rose mainly on the diesel news. There were some flows
heard of in the morning and the euro also ran away in afternoon
trade which further boosted the INR," said Hari Chandramgethen,
head of foreign exchange trading at South Indian Bank.
"In the near-term, I expect the pair to hold in a 53.60 to
54.50 range. Tomorrow we may test 54.05 levels," he added.
The partially convertible rupee closed at
54.3850/3950 per dollar versus its previous close of 54.69/70.
Traders said gains in the domestic share market also aided
Shares advanced for the third time in four days, led by
gains in state-run oil companies after the government's move.
Bullish bets on the Indian rupee fell in line with most
other Asian currencies, according to the latest Asia wide forex
positioning survey of 14 analysts.
In the onshore forwards, the three-month premium
dropped to 97 points from 98.75 previously while the 1-year
dropped to 333.75 from 342 on the back of the rupee's
gains but premiums expected to stay high in the near-term.
"RBI's dollar funding window will keep 1-3M FX premium at
elevated levels to lead forward supplies and lag forward demand
for dollars," said J.Moses Harding, head of asset liability
management at IndusInd Bank.
In the currency futures market, the most-traded near-month
dollar/rupee contract on the National Stock Exchange, the MCX-SX
and the United Stock Exchange all closed at around 54.40 with a
total traded volume of a high $7.7 billion.
(Editing by Anand Basu)