The Hindu Business Line : Rupee hits 9-year high on Fed move

Mumbai, Sept. 19 The rupee extended its gains against the dollar on Wednesday and hit 40.20, spurred by the US Federal Reserve’s 50 basis point cut in interest rates.

The currency opened at 40.26 and closed at 40.19/20, against Tuesday’s close of 40.48.

The appreciation was in tandem with the strength of major currencies against the greenback. The euro moved up to $1.3970, from Tuesday’s $1.38.

The currency was also tracking the surge in the stock market. Forex traders said that US Fed’s cut would help attract capital flows to emerging markets and would aid the rupee’s strength.

“The rupee was largely driven by sentiments on the rate cut by Fed,” said Mr P Mukherjee, President, Treasury, AXIS Bank.

RBI intervention

Market participants, however, felt that the rupee could have strengthened further but for the fact that the RBI was seen intervening at 40.23 levels in order to cap its appreciation.

“The rupee could have appreciated beyond 40.20 levels in the absence of central bank’s intervention,” said Mr V Rajagopal, Head-Forex Treasury, Kotak Bank.

The rupee had touched a high of 40.29 on July 23 this year. It rose to an intra-day high of 40.20 on July 24.

Treasury officials believe that as the stock markets, globally, have witnessed an upswing, the allocations to India are also likely to increase.

“Both FII and FDI inflows are likely to increase, which means that the rupee could test the 40 level. A stronger rupee will also help ease inflation,” Mr K. Harihar, Head, Treasury, Development Credit Bank.

Liquidity fears

Bankers, however, cautioned that India had not yet reached the peak of a hardening interest rate cycle, as liquidity is still a constraint.

Credit growth is also likely to pick up in the coming months, they said. Oil prices will also continue to keep inflation under pressure.

“A domestic fuel price hike has not yet taken place and given that oil prices are at $82 per barrel, it is a concern. The RBI is likely to look at all these domestic factors before taking a call on interest rates,” said a senior treasury official at a private sector bank.

Mr L.V. Prasad, Head- Forex, IndusInd Bank, added, “The appreciation of the rupee will take off some pressure due to the high oil prices. The rupee could appreciate to 40.10 on Thursday”

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