The rupee shed the “senior citizen tag” on Friday, closing at a near eight-month high of 59.95 against the American currency on the back of exporters selling dollars and an increase in foreign exchange inflows.

With the domestic unit appreciating beyond the psychological mark of 60, the Reserve Bank of India bought dollars to stem the rupee’s rise.

The central bank was active in the currency markets on Friday, said a senior public sector bank treasury official. “The rupee’s rise is a concern. It should not have breached the 60 level…it is a worry for exporters,” he added.

M Rafeeque Ahmed, President, Federation of Indian Export Organisations, agreed that exporters are nervous as they had booked export orders at 61-62 adollar. Though the rupee appreciated 3 per cent in March, importers will not agree to change the pricing, he added. A depreciating rupee had enabled exporters such as IT and pharma companies realise more. It had also helped reduce the country’s trade deficit. On Thursday, the rupee had closed at 60.32. In intra-day trade on Friday, it rose up to 59.70 before the RBI stepped in.

Outlook

The rupee’s medium term movement will depend largely on the outcome of the general elections in May and the US Federal Reserve’s pace of tapering its bond purchase programme.

Shubhada Rao, Chief Economist, YES Bank, wrote in a note, “While a move back towards 62 levels cannot be ruled out during the course of the year, we believe the path of weakness will be short lived… we expect rupee to move towards 58 levels by December 14/March 15.”

Foreign inflows from custodial banks were also seen during the day, according to dealers. They were compelled to convert their dollars into rupees as there was demand from investors to invest in the country’s stocks and bonds. Encouraged by India’s low current account and fiscal deficits, foreign investors have invested a net $9.42 billion so far in 2014.

On Friday, the benchmark BSE Sensex closed at an all-time high of 22,339.97 points.

(This article was published on March 28, 2014)
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