Mumbai: Rupee Skyrockets to Five-Month High on Trading Optimism
Indian currency, the Rupee, registers a 5-month high, fueled by foreign fund inflows and the absence of the RBI.
In a thrilling turn of events, the Indian rupee surged to a five-month high on Wednesday, closing at 84.49 to a dollar. This impressive growth was bolstered by foreign fund inflows and heightened optimism over a potential US-India trade deal.
As the Reserve Bank of India held back intervention, traders seized the opportunity to sell the US currency, spurring the rupee's ascent. But let's not forget the looming threat of an Indo-Pak war, which could swiftly erase these hard-earned gains, as analysts caution.
"The surge in fund inflows appears to be linked to the new 10-year bond launch by RBI on Friday, as well as JP Morgan emerging market debt index flows that had remained dormant due to a weakening rupee," explains Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors. He continues, "While importers are entirely hedged, exporters are seizing the rare opportunity offered by the bolstered rupee."
India: Fourth Largest Economy in the World
This impressive performance of the rupee can be attributed to multiple factors. Lower crude oil prices, the RBI's decision to purchase government bonds worth Rs 1.25 lakh crore to maintain surplus liquidity, and the RBI's rate cut expectations in the next meeting have all played a role. Furthermore, the US trade secretary's positive remarks and the appreciation of Asian currencies like the offshore Chinese Yuan and the South Korean Won have also contributed to the rupee's growth.
As a result, the rupee has famed nearly 4% since hitting its lowest of 87.96 in late February and reached its highest this year.
Boosting Growth with Increased Investment and Wages
Amid this positive momentum, the Chief Economic Adviser of India urges India Inc to increase capital expenditure and worker pay to sustain this growth trajectory.
Maharashtra Day will see the country's financial markets shut on Thursday. Despite the temporary halt, analysts remain optimistic about the rupee's continued growth unless geopolitical tensions between India and Pakistan emerge.
"Should the spot USDINR pair encounter any geopolitical tension between India and Pakistan, the rupee's upward trend could face a significant challenge," warns Dilip Parmar, Senior Research Analyst at HDFC Securities.
While the exact factors influencing the Indian rupee in 2021 remain elusive, economic principles suggest that India's economic growth, monetary policies, inflation rates, trade balance, and global economic conditions might have played crucial roles. Nevertheless, specific data or news from that year would be needed for a comprehensive analysis.
The surge in the rupee can be linked to the increased flow of foreign funds, potential US-India trade deal optimism, and positive market sentiments, as explained by Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors. Moreover, the growth of the rupee is also dependent on the country's business environment, with factors like lower crude oil prices, RBI's monetary policies, and global economic conditions playing significant roles.
