Mumbai: The Indian rupee on Friday closed stronger, the maximum gains in 2 months against the US dollar, supported by the suspected intervention of the Reserve Bank of India (RBI) in the currency market and positive cues from Asian peers.
The rupee closed at 68.47 a dollar, up 0.4%, its maximum gain since 22 September, from its previous close of 68.57. The home currency opened at 68.73 against the US dollar and touched a high of 68.36. So far this year, it has fallen 3.4%.
“Some state-run banks were seen selling dollars after local currency plunged to record low on Thursday,” said a forex dealer, requesting anonymity.
The Indian currency sank to a record low against the dollar before staging a marginal recovery on Thursday as global funds sold Indian and other emerging market assets on rising expectations of a US interest rate increase next month. The rupee hit record low of 68.86 on Thursday and fell 2.5% so far in November.
Some analysts expect the local currency to hit a level between 70 and 72 per dollar in the near term in the belief that the Reserve Bank of India (RBI) would want to preserve its foreign exchange reserves.
“A rising yields in US and a stronger dollar overseas are bad things for emerging markets and Rupee is no exception. Foreign institutional investors are least interested to chase long bonds at these yields and they are not showing much enthusiasm on the equity front too. All in all, Rupee is drifting lower, only countered by spirited intervention from the central bank, who is using ETC and OTC to sell USD”, said Kotak Securities in a Friday report.
Bond yield erased losses after Bloomberg reported that India’s finance ministry is considering raising the limit for the Market Stablisation Scheme, which will help the central bank manage the extra liquidity in the system. The government is also considering limit on domestic gold holdings, the report added.
The benchmark 10-year government bond yield closed at 6.233% compared to Thursday’s close of 6.19%. Bond yields and prices move in opposite directions.
India’s benchmark Sensex index closed at 26,316.34 points, up 1.8% or 456.17 points from its previous close. So far this year, it has gained 0.8%.
Asian currencies markets closed higher. Japanese yen was up 0.43%, Philippines peso 0.29%, Singapore dollar 0.28%, South Korean won 0.26%, Indonesian rupiah 0.24%, Taiwan dollar 0.07%, Thai Baht 0.05%.
So far in November, foreign institutional investors have sold a combined $4 billion in local equity and debt, the steepest selling seen in over three years.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 101.4, down 0.29% from its previous close of 101.7.