Re at 4-week high as markets rally

Fall in crude seen lowering inflation & export bill, fuelling rise in rupee for second session

Rupee rose to a four-week high on Thursday to close at 62.67/$ as domestic equity markets rebounded and foreign investors continued to buy bonds. Foreign banks and exporters were seen selling dollars, which helped the rupee rise to an intraday high of 62.59 against dollar.

“Dollar flows into the debt market is supporting the rupee. We have seen good flow so far,” said Ashish Parthasarthy, head of treasury at HDFC Bank.

Currency dealers said the fact that foreign investors were buying Indian bonds despite the recent weakness in global markets on the back of worries over the European Union had helped the rupee. Data from depositories showed that foreign investors bought $440 million of rupee bonds so far in January.

Further, foreign banks bought close to Rs 7,500 crore ($1 billion) worth of government bonds on Wednesday, data from the Clearing Corp of India showed.


Among emerging market currencies, the rupee’s losses have been limited largely due to steady inflows into the bond market and improved inflation outlook due to the massive fall in global oil prices.

The fall of nearly $50 per barrel in Brent crude prices over the last six months is expected to temper inflation and the import bill of the country. A $10 per barrel fall in the oil prices can reduce the current account deficit by around $8 billion, according a Bank of America-Merrill Lynch report.

The rupee has gained for the second straight day after having weakened 0.21% in the first five trading sessions of 2015. Bank of America-Merrill Lynch expects the currency to trade around 63/$ for the next two months.

Minutes of the US Federal Reserve’s December meeting that stoked hopes of Fed not raising rates until April also helped the rupee.
An interest rate hike by the Fed would increase the return of dollar denominated assets, thereby, reducing the lure of emerging markets including India.

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