Rupee ends at over 2-month high

Appreciation due to talks in US failed to reach an agreement to end budget crisis there

The rupee closed at 61.08 against the dollar on Friday, a two-month high, compared with the previous close of 61.36, on the back of positive sentiments prevailing in the market. The appreciation was because the talks between the White House and the Republicans failed to reach an agreement to end the budget crisis in the US.

Besides that International Finance Corporation (IFC) launched India's first offshore rupee denominated bond issue, which hopes to raise $1 billion, thus helping dollar flows into the country.

There are also talks that the government is in talks to gain entry into benchmark indexes, a move that will again help attract dollar flows into the country.

Yesterday the Reserve Bank of India (RBI) granted permission to banks to borrow from  from international / multilateral financial institutions for a limited period up to November 30, which is again a positive move for the rupee.

The Indian currency had opened at 61.10 against the greenback and, during intra-day trades, touched a high of 61.01 and a low of 61.37. The rupee had ended at 60.86 on August 8 against the dollar.

“The strengthening spree may continue next week but the October 17 US debt ceiling deadline will provide more direction to the rupee's movement,” said S Srinivasaraghavan, head of treasury at Dhanlaxmi Bank.

The rupee is expected to be stable in the near term. “We expect the rupee to hover around 60-62 in the near term. Thus, the favourable lagged impact of rupee depreciation will manifest itself in the trade-related sectors during the quarter,” said Axis Capital in a note to clients.

The Street believes RBI might not allow the rupee to strengthen beyond 60 per dollar. “RBI may either create dollar demand by asking public sector oil marketing companies to meet their requirements from the market or the central bank may ask banks to persuade their corporate customers to cover up for their unhedged forex exposures. Besides, RBI may even start buying dollars from the market to boost their foreign exchange reserves,” said Partha Bhattacharya, deputy CEO, Mecklai Financial.

RBI data shows that foreign exchange reserves of the central banks stood at $277.7 billion, recording a rise of $1.46 billion for the week ending October 4. Foreign currency assets, which form a major component of the reserves, rose by $1.40 billion during the week to $249 billion.