Rupee manages to pound the greenback

The rupee gained 4 per cent against the US dollar in 2004. The rupee closed today at 43.7273 against the greenback against 45.66 at the end of December 2003. Essentially, the rupee is strengthening on the back of the weakening of the dollar against major global currencies.

A current account deficit of $165 billion, a fiscal deficit of $58 billion and a not-so satisfactory economic data from the US has resulted in a dollar losing ground against all major currencies across the globe.

The rupee strengthened against the greenback as global fund managers and hedge funds scurried to emerging markets in expectation of better investment returns.

Total foreign inflows in 2004 was estimated at $9.02 billion against a net foreign institutional investment of $7.59 billion in 2003. The country's forex reserves have thus improved significantly from $103 billion in 2003 to a high of $130 billion at present.

"The year was remarkable for the rapid and robust growth of forex reserves, which has helped make the rupee strong even in uncertain markets," said Sundeep Bhandari, regional head (global markets), Standard Chartered Bank.

The rupee story in 2004 is clearly about appreciation on a sustained basis. Last year, saw the rupee appreciate higher by 5 per cent, but 2004 saw greater intra-day volatility, not witnessed earlier.

P H Ramaswamy, treasury head, Calyon Bank, said the strengthening rupee is coupled with the increasing depth of the Indian foreign exchange market.

The rupee strengthening at this point in time has helped check inflation and reduce the oil import bill, he added. The market is of the view that the central bank has been managing the rupee with a bias towards appreciation. This is because any intervention adds to the liquidity, and impacts the money supply, thereby, triggering inflation.

While the rupee consistently strengthened against the greenback in 2004, it lost by over 3 per cent to the other two major currencies "" the euro and pound sterling.

These European currencies gained over 9 per cent in the calendar year from $ 1.2485 for every euro and $ 1.7705 for every pound sterling in December 2003 to $ 1.3625 for every euro and $ 1.9369 for every pound sterling in 2004.

The euro-rupee exchange rate has gone up from 57.41 in January 2004 to 59.36 in December, while the pound sterling-rupee rate has risen from 81.57 to 84.38 during the same period.