Mumbai: The rupee strengthened the most in four months on speculation the US Federal Reserve’s plan to buy $1 trillion (Rs50.8 trillion) of bonds will drive interest rates lower, boosting demand for higher-yielding assets.
The currency climbed to a three-week high versus the dollar as the Bombay Stock Exchange’s benchmark index, the Sensex, closed above 9,000 for the first time in a month.
Overseas investors bought Indian shares worth $110 million more than they sold on 17 March, the most in more than three months, according to the latest data from the Securities and Exchange Board of India.
“The rupee’s bias is clearly upward,” said Sudarshan Bhatt, chief currency trader at state-owned Corporation Bank in Mumbai. “Markets are rallying globally, showing the Fed’s bond purchase announcement has boosted investor confidence.”
Upward curve: The rupee rose 1.8% to 50.3825 per dollar on Thursday, the strongest since 25 February and the biggest gain since 4 November. Harikrishna Katragadda / Mint
The rupee rose 1.8% to 50.3825 per dollar as of the 5pm close in Mumbai, according to data compiled by Bloomberg. That is the strongest since 25 February and the biggest gain since 4 November. The currency has rebounded 3.6% since reaching a record low of 52.1850 on 3 March.
Offshore contracts indicate traders are betting the rupee will reach 50.79 per dollar in a month, compared with expectations for a rate of 51.67 on Wednesday.
Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non- deliverable contracts are settled in dollars rather than the local currency.
The rupee also gained on optimism economic stimulus measures unveiled by the government and central bank in recent months will help revive growth. The government has announced additional spending while the Reserve Bank of India has cut interest rates five times since September.
The stimulus packages have begun showing an impact, cabinet secretary K.M. Chandrasekhar said in New Delhi on Thursday. Demand in the cement, auto, steel and infrastructure industries has been “picking up”, he said.