RBI’s hands-off approach helps Rupee post biggest gain in 20 months

The Indian rupee rose to its highest level in nearly six months on Friday closing at 73.39 per dollar, a gain of 0.6 per cent. It had risen to 73.28 earlier, its strongest level since March 5.

At 2 per cent rise, it is rupee’s biggest gain in last 20 months. On December 21, 2018, it rose by 2.4 per cent. Experts attribute the strengthening of rupee to inflow of dollar into the Indian stocks and gains made by other Asian currencies. Foreign investors are rushing into Indian equity market while the central bank i.e. the Reserve Bank of India (RBI) is refraining from currency intervention. As a result, the rupee is gaining in strength, say traders.

The RBI was seen regularly buying dollars via state-run banks to prevent a sharp appreciation in the rupee. “The sharp fall in dollar/rupee spot has been very unexpected and traders are in shock, with every major support being tested,” Rahul Gupta, head of currency research at Emkay Global Financial Services, told Reuters.

Related news: Govt pegs GST shortfall at ₹2.35 lakh crore this fiscal

“Initially, RBI was protecting the 74.50 zone, but its absence has led to a free fall. Technically, 73 looks to be a strong support and unless the spot doesn’t consistently trade above 73.50 the (dollar), bearishness will continue, with 74 being resistance.”

Experts suggest the RBI will continue to build its forex reserves, which are up $60 billion at $535.35 billion since the start of the fiscal year in April.

“We forecast a rise in foreign reserves to $567 billion by the end of FY20-21, and to $642 billion by end-FY21-22, expanding India’s level of import cover,” said Rahul Bajoria, an economist with Barclays.

Related news: Chidambaram calls FM ‘messenger of God’, asks reason for GDP fall