The rupee recorded an 18-month high intraday gain, as six central banks took concerted steps to increase dollar liquidity in the global financial system. on Thursday, the rupee gained 74 paise, or 1.4 per cent, to close at 51.46 against the dollar.
The central bank of the UK, Switzerland, Japan, the US and Canada, along with the European Central Bank, had agreed to cut US dollar liquidity swap rates by 50 basis points. The central banks also agreed to establish temporary bilateral liquidity-swap arrangements. These measures improved dollar liquidity in the global financial system.
"This step is supportive and not necessarily a game changer. The rupee fundamentals are weak and the dollar is still bullish. Our target of 52.50 is still intact," India Forex Advisors said in a note on Thursday.
The euro was trading at $1.3492, compared with $1.3444, at the close in New York yesterday.
Traders said multinational banks were major sellers of the dollar in the foreign exchange market on Thursday, as they cut their positions in the safe-haven currency. The strong performance of domestic equity markets, coupled with a good response to auctions of increased foreign investment limits in Indian debt yesterday, helped the rupee return to below 52-levels, as it traded in the range of 51.40-51.84 against the greenback on Thursday.
According to the Bombay Stock Exchange, there were net foreign fund inflows of Rs 687 crore in domestic equity markets, which closed around two per cent above the previous day's close. "We can expect the rupee to appreciate a little more if global factors stay strong, but the broader outlook still remains weak," said Ashutosh Raina, chief dealer, HDFC Bank.
The Indian currency has lost close to 17 per cent in the last three months, owing to global risk aversion. "We expect an equilibrium range of around 50.50-53.00 in January-March 2012," HDFC Bank stated in a research report. "The biggest risk to our forecasts is a possible comprehensive resolution to the European crisis, something we think is unlikely in the near term," it added.
Premiums surged in the forwards segment, tracking a rally in the spot market. The one-year dollar-rupee premium ended at 3.62 per cent, compared with 3.15 per cent on Wednesday.
Bonds strengthen
Government bonds strengthened further on sustained demand from banks and companies, and owing to another auction of a new, 19-year, 2030 government stock for a notified amount of Rs 3,000 crore (nominal) by the central bank tomorrow.
Call rate dips
The call rate on Thursday dropped to 8.40 per cent at the overnight money market on a surfeit of liquidity in the system.
