The Indian rupee continued its strong performance and remained at a fresh two-year high against the US dollar in morning trade on Thursday, on surging dollar inflows.
The rupee opened at 63.65 a dollar after closing Wednesday at 63.70 a dollar, a level last seen on 22 July 2015. Rupee closed at 63.64, up 0.02% from its previous close.
The rupee has been on upward trend since a few months, mainly because of higher foreign portfolio inflows into the equity and bond market in view of further improvement in macroeconomic indicators. This can be also gauged from the market reaction post the Reserve Bank of India’s (RBI) announcement of a 25 basis points cut in repo rate, at which it infuses liquidity into the banking system.
One basis point is a hundredth of a percentage point.
Usually, a rate cut results in weakening of currency because foreign investors may want to pull out of the domestic markets due to narrowing interest rate differential.
Currently, the 10-year Indian government bond is yielding 6.43%, sharply higher than 2.243% offered in the US.
“Despite this, the rupee has not weakened. Though there was some intervention from the RBI, it did not stop the rupee from passing the crucial 64 level. This upward trend is likely to continue,” said a foreign exchange dealer with a private sector bank, who did not want to be named.
So far this year, the rupee has gained 6.64%, while foreign institutional investors bought $8.75 billion and $17.70 billion in equity and debt markets, respectively.
In addition to domestic factors, recent weakness in the US dollar against major world currencies has also contributed to the gains in the Indian unit. The US currency has been weakening because of uncertainties surrounding further rate hike and US President Donald Trump’s administration.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 93.025, up 0.2% from its previous close of 92.836