The currency, at 47.08 per dollar on August 31, has gained 6.1 per cent since.
The rupee rose to its highest level since September 2008, supported by record overseas investment in stocks and other inflows. The rupee closed at 44.20 against dollar after touching an intra-day high of Rs 44.13.
The currency, which traded at 47.08 per dollar on August 31, has gained 6.1 per cent since then. The rupee has become stronger against dollar by five per cent this year, the biggest annual gain in three years.
Foreign institutional investors (FIIs) have purchased stocks worth $20.52 billion, the highest annual inflow in stocks since such investments were permitted in1992. They bought bonds worth $10 billion in 2010, compared to a cumulative $17.5 billion so far.
FII purchases have pushed the Sensex to its highest level in 33 months. Overseas funds are investing in India and other emerging markets to benefit from faster growth in these economies compared to tardy growth in Western economies. A weaker dollar is also strengthening currencies of several emerging market economies, besides India.
The Sensex has posted 13 per cent of its 16 per cent gain in 2010 after August 31, and FIIs invested about $7 billion in stocks and bonds in September. Foreign funds invested $2.15 billion this month up to October 6.
“If inflows sustain at $250 million to $280 million a day, we could see the Rs 44-to-a-dollar getting breached this month,’’ said Priyanka Chakravarty, an FX strategist at Standard Chartered Bank in Mumbai. “Still, Rs 44.15 is a strong level technically.’’
Initial sale of shares by companies and the forthcoming one by Coal India may also attract large amounts from FIIs and further lift the rupee, say bankers.
While bankers say the Reserve Bank of India has stayed away from buying or selling the dollar, or intervened, it is giving oblique hints to the market. Its stated policy is to let the rupee find its own level based on market forces, leaving it to contain volatility in the exchange market.
Since inflows were emerging as a potential threat, the RBI was thinking of ways to deal with it, RBI deputy governor, Subir Gokarn, was cited as saying this week. If capital flows are in excess of the current account deficit the pressure to appreciate will continue and it could potentially disrupt, he said.
