The rupee strengthened to end at a two-week high against the dollar today as inflows from foreign funds after large outflows last month boosted the sentiment for the local unit, dealers said.
Foreign banks were said to be selling dollars as local shares gained, amid investments from foreign funds, following the Reserve Bank of India’s (RBI) rate cuts on Saturday, dealers said. The rupee closed at 48.65 to a dollar compared with 49.46 on Friday.
“RBI measures helped shares gain and, in turn, helped the rupee to rise today. However, we need to wait and watch for a week or so to get a clear direction of the rupee’s movement,” said P Mukherjee, president, treasury, Axis Bank.
“Globally, the level of risk appetite is going up among investors. Also, stocks rallied domestically with RBI’s move. With sentiments having improved, there was some FII inflow,” said a senior dealer at a large US bank.
The host of measures taken by RBI to improve liquidity in the domestic money market propped up local shares today in addition to the rise in global indices, dealers said.
On Saturday, RBI slashed CRR to 5.5 per cent in two stages, repo rate to 7.5 per cent and SLR to 24 per cent in a bid to ease the rupee liquidity.
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In October, outflows from foreign funds stood at $4.28 billion. Following a strong opening, the Indian currency extended gains intraday on the back of dollar sales from exporters, dealers said.
“There were a few exporters in the market today as they feared a further rise in the spot rupee,” said a dealer with a state-owned bank.
Some banks also sold the greenback noting that the offshore non-deliverable forward (NDF) rates had eased today, dealers said.
“With the level of risk having gone up, offshore players are in fact selling dollars here. Today, there was unwinding of long dollar/rupee positions (in the NDF market),” said the dealer of a US bank.
“In addition to sales for FIIs, most foreign banks sold (dollars) today as the NDF rates came off,” said a dealer at a brokerage.