The Indian Rupee hit a fresh two year high of Rs 63.6 against USD on Thursday, it’s best since August 2015. Yesterday, the INR had closed at RS 63.7 against the dollar. The rupee is up by nearly 6% in the year, and emerged as one of the best performing currencies in the world. This new high assumes significance, as the INR had been trading in the 64-65 range in the last four months. Foreign investors have invested a staggering $4 billion into the Indian capital market in July, as they see “better prospects” of economic growth as compared to other emerging markets. While on the other side, low inflation in the United States and a lack of anticipated fiscal reforms has caused the US yields to fall. Consequently, the US Dollar has underperformed. Ananth Narayan, head, financial markets, Standard Chartered Bank explained, “The fundamentals for India have improved and, on the other hand, the dollar has weakened. All this has made India one of the-best-performing currencies in the world.”
The rupee moving from strength to strength will keep imported inflation under check, however, it may adversely impact the competitiveness of exports. The timely 25 basis points rate cut announced by RBI yesterday too played a role in the rupee achieving this feat. Earlier, on Tuesday, the Rupee had rallied more than 10 paise on hopes of a rate cut. Yesterday, the central bank had revised the key interest rate to 6%, down by 0.25%. The economic affairs secretary, Subhash Chandra Garg said, “We welcome the 25 bps cut in the Repo Rate as an important step necessary to converge toward the appropriate real monetary conditions for sustained growth consistent with India’s potential and for stable, moderate inflation”.