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The rupee rose to a six-week high on Friday, on optimism that foreign investors would keep investing in Indian markets, amid signs of an economic recovery.
On Friday, the rupee rose 23 paise to close at 61.76 against the dollar. After opening on a weak note, owing to global cues and month-end dollar demand from importers, the rupee gained, as exporters and foreign banks sold dollars at high levels.
On Wednesday, it had closed at 61.99/dollar.
Treasury executives said besides better economic prospects, a fall in inflation and the fact that the country’s current account deficit had narrowed drove interest in Indian markets.
It is expected the economy will grow 4.9 per cent this financial year. For 2013-14, India’s current account deficit is set to fall to $45 billion from a record $88 billion in 2012-13. During the same period, the government’s fiscal deficit is expected to fall from 4.9 per cent of gross domestic product to 4.6 per cent.
As economic fundamentals improved, investors were beginning to view the rupee more favourably, said a dealer with a European bank. He, however, added the biggest risk to the currency stemmed from the coming elections.
In February, foreign investors added $2.2 billion to holdings of Indian shares and rupee debt. A foreign exchange dealer at a public sector bank said the strengthening economy had lured investors, even as the US Federal Reserve tapered its stimulus programme. On Thursday, Fed Chairperson Janet Yellen had said the central bank was likely to keep trimming asset purchases.
In January, Wholesale Price Index-based inflation eased to an eight-month low of 5.05 per cent, while Consumer Price Index-based inflation fell below nine per cent, the first time since 2012.
In February, three-month offshore non-deliverable forwards gained 1.5 per cent to 63/dollar, data compiled by Bloomberg showed. On Friday, the contracts rose 0.4 per cent. Forwards are agreements to buy or sell assets at a set price and date. Non- deliverable contracts are settled in dollars.
