Mumbai: Rising equity markets coupled with increased inflow of foreign funds and lowered chances of a US rate hike, strengthens Indian rupee to 64.74 during the just-concluded weekly trade.
The rupee’s close at 64.74 to a US dollar, represents a gain of 77 paise on a weekly basis. The rupee had closed at 65.51 to a US dollar in the week ended Oct 1.
This the the second time this month that the rupee has ended below the 65 level. On October 7 the Indian rupee closed at an eight-week high of 64.96 to a US dollar.
The rupee was last seen below the 65-level mark on August 12, when it closed at 64.81.
“The rupee’s bullishness can be seen due to exporters selling riskier assets and markets re-investments into India,” Hiren Sharma, senior vice president, currency advisory at Anand Rathi Financial Services, told IANS.
“There has been an increased inflows into both the equities and debt markets due to the Reserve Bank’s monetary policy decision and positive global cues.”
The rupee also made gains on the back of dovish FOMC (Federal Open Market Committee) minutes. The US Fed’s FOMC minutes which were released on late September 8 had indicated lower chances of a rate hike in October.
The FOMC minutes were of the September 16 meeting in which the US Fed decided not to hike lending rates. The US Fed is slated to conduct its FOMC meet on October 27-28.
The FOMC minutes assumes significance as higher interest rates in the US are expected to lead away FPIs (Foreign Portfolio Investors) from emerging markets such as India.
“The FOMC minutes indicated that the authority (US Fed) is in no hurry to raise rates… this hurt dollar demand,” Sharma said.
According to Hemal Doshi, chief currency strategist, Geofin Comtrade, the rupee might weaken in the near term as the “short-term technicals are oversold”.
He estimated a medium term range of around 64.50-70.
Another reason for rupee’s gains is the September 29 decision of the Reserve Bank to allow greater access to foreign funds to invest in rupee-denominated government backed bonds.
The RBI had said that it intended to provide a more predictable regime for investment by foreign funds and decided to raise their exposure limits in phases in central government securities to 5 percent of the outstanding stock by March 2018.
The central bank also set a separate limit for investment by such funds in state development loans, which are to be increased in phases to reach 2 percent of the outstanding stock by March 2018.
The RBI’s decision is expected to usher in around $2.5 billion by this fiscal end.
The Indian equity markets too gave a stellar performance in the week under review.
The barometer 30-scrip sensitive index (S&P Sensex) of the Bombay Stock Exchange (BSE), rose 858.56 points or 3.17 percent up at 27,079.51 points from its previous weekly close at 26,220.95 points.