Heavy FII inflows lead to the surge.
The rupee on Monday touched a 19-month high against the US dollar on heavy inflows from foreign institutional investors (FIIs). Besides, exporters are said to have sold dollars as the Indian currency has been appreciating.
What helped sentiment was accumulated dollar inflows due to two holidays last week, dealers said. The foreign exchange market was closed on Thursday and Friday.
The Indian currency touched an intra-day high of 44.43 against the dollar before closing at 44.45. On Wednesday, it had closed at 44.92. At 44.43, the rupee was at the highest level since September 4, 2008.
So far in 2010, the rupee has appreciated 4.67 per cent, making it the second-biggest gainer among the major Asian currencies with only the Malaysian ringgit rising more (see table).
Between January and April 1, FIIs have pumped in nearly Rs 43,000 crore in the Indian markets with Rs 21,547 crore flowing into the debt segment, while Rs 21,294 crore has been the net investment in equities according to the data released by the Securities and Exchange Board of India.
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In a span of 13 months, when it touched an all-time low of 52.18 against the dollar, the rupee has appreciated nearly 15 per cent, as portfolio flows have resumed.
With capital inflows expected to increase, the rupee is likely to gain further in coming weeks.
In the currency futures market, the contracts indicate further appreciation against the dollar. On the National Stock Exchange (NSE) and MCX-SX, the April contracts ended at 44.54 against 45.03 on Wednesday
Offshore contracts indicate the rupee will trade at 44.83 to the dollar in a month, compared with expectations of 44.97 on March 31. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non- deliverable contracts are settled in dollars rather than in the local currency.
While there was some panic selling by exporters on Monday, dealers said some banks sold dollars anticipating inflows on account of the auction of 3G telecom licences. But, despite a sharp rise in the value of the rupee, the Reserve Bank of India (RBI) had stayed away from intervening in the market, they added. The central bank intervenes to check steep volatility in the currency markets.