Mumbai: The rupee rose further against the dollar on Friday as bank dealers sold the US currency in expectation of an improvement in dollar inflows following measures announced by new Reserve Bank of India (RBI) governor Raghuram Rajan on Wednesday.
The Indian currency closed at 65.25 per dollar, up 1.33% from the previous close of 66.12. It opened higher at 66 per dollar and touched a high of 65.01 and a low of 66.30.
Manoj Rane, managing director and head of fixed income and treasury at BNP Paribas SA’s Indian unit, said two measures introduced by RBI in the last two weeks have had the maximum impact to address currency volatility.
After taking over as RBI governor on Wednesday, Rajan allowed banks to swap their dollar deposits with the central bank at a special concessional rate of 3.5% for at least three years. This, along with a separate window opened by RBI to meet dollar demand from oil marketing companies, have helped the rupee immensely, Rane said.
“Measures announced before these two like tightening liquidity were ill-advised. It did not help the rupee instead and worsened the sentiment. Having said that, the current strength in the rupee is more sentimental and from here on if the currency has to appreciate, we will have to see real capital inflows coming in,” Rane added.
Rane said the problems for the Indian currency were far from over and the rupee could fall from current levels, especially if geopolitical risks from the Syrian crisis spike oil prices.
“However, I do not expect it to touch the all time lows seen earlier this month. Rs.65 will be the pivot for the currency and the RBI should target to be around those levels in the current global scenario,” Rane said.
Since January this year, the rupee has weakened 15.71% and has lost the most among Asian currencies during that period.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 82.546, down 0.11% from the previous close of 82.633.
The 30-share bellwether index of BSE—the 30-share Sensex—gained 1.53%, or 290.30 points, to 19,270.06 while the National Stock Exchange’s broader 50-share index—the Nifty—rose 1.56%, or 87.45 points, to 5,680.40 points.
The 10-year bond yield stood at 8.610%, up 2.38% from previous close of 8.410%. It opened at 8.419% and touched a high and a low of 8.61% and 8.359%, respectively.
Overnight call money rate dropped to 9% from previous close of 10.25%. It opened at 10.27% and touched a high of 10.3%.
