The Hindu Business Line : Rupee gains 40 paise, closes at 44.06

BUOYED by the strong tide of dollar inflows into the country, the domestic currency gained another 40-paise lead over the greenback on Monday, closing at 44.06/07 per dollar in a liquidity-driven forex market.

According to market participants, the rupee is "just a whisker away" from reaching the 43 levels.

On a week-on-week basis, the rupee has appreciated by 100 paise from its closing levels last Monday (March 23) at 45.0875.

Currency analysts and forex dealers, still reeling from the sudden surge in rupee value against the greenback and other international currency majors over the past fortnight, hypothesise that the Reserve Bank of India is allowing the domestic currency to appreciate with "good reason".

"Perhaps the RBI has information that there may be major FII inflows into the country in the near future and maybe that's why they have pulled out all the stops on rupee appreciation, at least for now," said a dealer with a public sector bank.

Another theory doing the rounds is that the apex bank may have decided to allow the rupee to find its `real levels', if only up to a point.

"Maybe there is a conscious shift in the policy stance and they will not aggressively support the dollar anymore. As per the latest available data, there has been a sizable export growth this year compared to last year despite the rising value of the rupee," said an analyst.

While it is unlikely that the RBI will let the rupee strengthen unabated, it is possible that a certain level is being targeted.

If the RBI does not intervene in the market, the rupee will go below 40 levels in a month, he added.

However, dealers and analysts concur that at this point all theories amount to pure conjecture, as it is difficult to speculate accurately on either the Finance Ministry's or the RBI's intentions in allowing the rupee to appreciate.

According to an analyst with a leading foreign bank in the country, the dollar inflows will continue unabated due to the freeing up of ECB routes and India still being considered a hot investment destination by international players.

Another possible reason behind the apex bank not aggressively mopping up excess dollar liquidity in the market could be the cost of carrying the country's burgeoning foreign exchange reserves, he added.

India's forex kitty, which was at $109.996 billion as on the week ended March 19, is seen by analysts as an expensive proposition for the country, fuelling the ongoing debate on the `cost and composition of reserves'.