Mumbai: The partially convertible rupee gave up all its early gains on Friday as a boost from stronger-than-expected industrial data gave way to a drop in the stock market and the dollar’s broad rebound.
The rupee ended at Rs47.61/62 per dollar, 0.5% below an intraday peak of Rs47.3750 hit in afternoon deals and steady with Thursday’s close. It fell 1% on the week.
Factory output rose 1.4% in April from a year earlier, beating forecasts for a fall, driven by domestic demand and confirming hopes Asia’s third-biggest economy has weathered the worst of the global crisis.
Along with Friday’s 1.1% fall in the stock market, dollar demand for oil importers and the euro’s losses on weak euro zone industrial output data weighed on the rupee.
Priyanka Chakravarty, a foreign exchange strategist at Standard Chartered, said the output data was a medium-term positive for the rupee, and expected further signs of recovery would drive it higher following next month’s budget.
“We maintain our overweight FX rating for the Indian rupee and forecast it at 45.50 (per dollar) by the year-end,” she said.
Kotak Mahindra Bank said given the signs of incipient recovery and the buoyant performance of the stock market, the chances of more central bank rate cuts are reduced considerably.
Foreign capital is a key driver for the rupee. Foreign investors have bought more than $7.5 billion of stocks since mid-March, helping the benchmark stock index rise about 90% from a 2009 low on 6 March.
The rupee has risen 9.6% from a record low of Rs52.2 in early March on the foreign inflows and improved sentiment after the Congress-led coalition was re-elected last month, but it has run into stiff resistance from the central bank (RBI) at Rs47 per dollar.