The Hindu Business Line : Rupee scales nine-year high

Business Daily from THE HINDU group of publications Tuesday, Jul 24, 2007 ePaper

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Rupee scales nine-year high

Aided by strong FII inflows, weakening dollar

Our Bureau

Mumbai, July 23 The Indian rupee rose to a nine-year high against the dollar on Monday. The home currency, which has been appreciating against the greenback since April, closed at 40.29 — a level last seen in May 1998. In May this year, the rupee touched an intra-day high of 40.28, but this is the first time in nine years the currency has ended the trading day at Monday’s level.

Forex dealers said strong FII inflows coupled with the weakening of dollar against other major currencies, especially euro, aided the rupee to gain strength. The rupee has strengthened by about 9.05 per cent in this year.

FII triggers

FIIs have been pouring large amounts into Indian bourses. According to information available on the NSE, FIIs were net buyers to the tune of Rs 1,025.57 crore on Monday. The benchmark BSE Sensex ended at another record high of 15,732.20, up by 167 points or 1.07 per cent.

“Capital market related inflows have been one of the strongest in July. We have to see whether similar flows will continue,” said Mr Ravi Pai, Head-FX and Derivatives, Treasury, HDFC Bank.

The home currency opened at 40.35/36 and quickly strengthened to 40.23, which is also the intra-day high spurred by strong inflows coupled with dollar selling, before ending the day at 40.29, about three paise up from the previous close of 40.32.

RBI impact

“The steep appreciation of rupee in the month of April was marked by the absence of RBI in the forex market but since then the rupee has seen a slow and steady appreciation. If the RBI continues to be in the market, then the strengthening of rupee will be a sole function of the strong inflows,” said Mr Pai.

A dealer with a public sector bank said the moment RBI keeps away from the market, the rupee will go below 40 a dollar.

“The continued expectation of strong FII inflows and the decent initial public offerings have given hopes of further appreciation of rupee,” said Mr K. Harihar, Head-Treasury, Development Credit Bank. He felt that the sops given to exporters would help further strengthening of rupee.

In forwards, the six-month premia closed at a low of 0.65 per cent (1.24 per cent) while the 12-month closed at 1.13 per cent (1.56 per cent).