The rupee on Thursday closed at a fresh two-year high of 63.69 against the dollar, Bloomberg data showed, having breached the crucial 64 mark on Wednesday.
The rupee on Thursday closed at a fresh two-year high of 63.69 against the dollar, Bloomberg data showed, having breached the crucial 64 mark on Wednesday. The Indian currency has been buoyed by strong portfolio inflows into the country’s bond and stock markets as also foreign direct investments. In 2017 so far, the rupee has gained 6.64% against the dollar, the biggest appreciation among peer currencies. While the Brazilian real has put on 4.54%, the Malaysian ringgit has gained 4.84%. In intra-day trade on Thursday the currency hit a high of 63.56 against the greenback — these intra-day highs were last seen in July 2015. On Thursday, the one-month non-deliverable forwards (NDFs) were trading at 63.87 to the dollar while the three-month NDFs were trading at 64.24. Foreign portfolio investors have invested a record $17.70 billion in the debt market and as much as $8.75 billion in equities, latest data from the depositories show. In 2016, the debt market saw outflows of $6.5 billion while flows into the equities market were $2.9 billion.
Jayesh Mehta, MD and country treasurer at Bank of America Merrill Lynch, said foreign flows could sustain, especially into the stock markets. “Insurance companies alone are looking to raise around $4 billion in the coming months and even if some part of this is picked up by foreign funds, we can discount any depreciation in the rupee,” Mehta told FE. Meanwhile, the currency markets are keeping a close watch on the Reserve Bank of India’s (RBI) interventions. “The resistance level has shifted from 66 earlier to 64 now. Whether the central bank has given up that line is something to watch out for,” Mehta said.
MV Srinivasan, vice-president, Mecklai Financial Services, believes the RBI may not have been able to effectively intervene in the markets due to overhang of liquidity. “There could still be some upside to the rupee which has so far has gained from a positive outlook on the economy and foreign inflows,” Srinivasan said. Dealers attributed Wednesday’s close of the rupee at 63.70 — 38 paise higher than Tuesday’s close — to a couple of banks offloading large dollar supplies. This is believed to have triggered stop-losses at the 64 level.
Further inflows into the bond markets would be limited given foreign investors have already bought up the entire quota for corporate bonds of Rs 2.44 lakh crore. Limits in central government securities of Rs 2.42 lakh crore have been full for some time. The quota for state development loans (SDLs) alone is yet to be used even as the current utilisation stands at 6.81% of the permitted Rs 28,500 crore in the general category. The SDL category was opened up to foreign investment more than a year ago.