The rupee on Friday strengthened to below 60 per dollar for the first time since July 2013. The strength in the currency comes at a time when Indian stock markets have rallied to a record high on the back of continued flows from foreign investors.
The rupee traded at 59.94 per dollar, up 37 paise from Thursday’s close of 60.31. This is an eight-month high for the currency. The stock markets also closed at record highs today. The Sensex rose 126 points to close at 22,340, while the Nifty ended up 54 points to 6,696.
Overseas investors bought domestic shares worth 2,192 crore on Thursday. This year they have invested over Rs. 20,000 crore in equity markets, driving shares to a record high.
Fundamentally, the sharp narrowing of the current account deficit has been the biggest driver for the rupee. India’s current account deficit is likely to be below 2 per cent of GDP this fiscal as compared to a record 4.8 per cent of GDP last year. A sharp reduction in import of gold coupled with rising exports have helped narrow deficit.
A series of steps taken by Reserve Bank of India Governor Raghuram Rajan, since he assumed office in September 2013, has helped the currency find its feet, analysts say.
Siddhartha Roy, economic advisory at Tata Group told that the fundamentals of the rupee are becoming strong day by day. There has been an increase in confidence, forex reserves have gone up and the trade gap has come down, he added.
NS Venkatesh, head (treasury) at IDBI Bank told that positive sentiment is driving flows into the rupee. Exporters are also selling their dollar holdings, which has been supporting the currency, he added.
The rupee can go to 58.50 in the short term, Mr. Venkatesh added.
The Reserve Bank of India (RBI) has been suspected to have bought dollars aggressively over the last two trading sessions to shore up its foreign exchange reserve and prevent a massive appreciation in the local unit which could be detrimental to export growth.