Mumbai: The rupee on Thursday pared some gains but still closed near a 17-month high against the US dollar as the Reserve Bank of India’s (RBI’s) intervention via state-run banks capped the steep rise, dealers said.
The rupee closed at 65.41, a level last seen on 30 October 2015, up 0.43% from its previous close of 65.82. So far this year, the rupee has become the third-best performing currency in Asia after the South Korean won and Taiwanese dollar. It gained nearly 3.85% in this period.
Earlier in the day, the rupee touched a high of 65.23 a dollar, a level last seen on 30 October 2015, and gained as much as 0.7%, tracking its Asian peers after the US Federal Reserve raised interest rates without accelerating its timeline for future tightening. Gains in rupee were also due to narrowed trade deficit data for February.
The Fed raised interest rates by 25 basis points and continued to project two more increases this year, signalling more vigilance as inflation approaches its target. One basis point is one-hundredth of a percentage point.
“The recent US rate hikes could mark the beginning of a significant shift in the global interest rate environment, with benchmark US policy rates settling higher over the long term than current market expectations,” according to Fitch Ratings.
Among Asian currencies, South Korean won was up 1.02%, Taiwan dollar 0.46%, Philippines peso 0.26%, Chinese renminbi 0.26%, Malaysian ringgit 0.23%, Indonesian rupiah 0.19%, Thai baht 0.07% and Japanese yen 0.05%. However, the China offshore was down 0.38% and Singapore dollar 0.27%.
Data released by the commerce ministry showed exports grew 17.48% to $24.5 billion in February, while imports rose 21.76% to $33.4 billion in the same month, leading to a trade deficit of $8.9 billion, the lowest in five months.
“The trade data suggest that exports have finally started to recover, but much of the recovery in imports has been largely driven by higher prices and not as much by volumes. In particular, low core import volumes are a clear sign of still-subdued domestic demand,” said Nomura Research in a note to investors.
“In our view, the spike in gold imports in February is likely a one-off and not the start of a trend. We expect the current account deficit to narrow to 2% of GDP (gross domestic product) in Q1 2017 from ~2.5% in Q4 2016. In 2017, we expect India’s current account deficit to widen marginally to a still-sustainable 1.3% of GDP in 2017 from 0.8% in 2016, owing to higher commodity prices and our expectation of a domestic demand recovery in H2 2017,” the Nomura report added.
The benchmark Sensex rose 187.74 points, or 0.64%, to close at 29,585.85. So far this year, it has risen 11.1%.
The 10-year bond yield closed at 6.841% compared to Wednesday’s close of 6.829%. Bond yields and prices move in opposite directions.
So far this year, foreign institutional investors have bought $2.90 billion and $627.30 million from local equity and debt markets, respectively.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 100.63, down 0.11% from its Monday’s close of 100.74.
Bloomberg contributed to this story.