Notwithstanding a weak equity market, the rupee continued its winning run against the US dollar for a sixth day. The rupee today hit a two-month high of 71.28 against the US dollar and is set for the longest winning streak in more than a year. This is the highest value of the rupee since September 4, making it the biggest gainer among Asian currencies. Sovereign bonds also gained as the yield on the benchmark 10-year bond fell 3 basis points to 7.76%. The rupee had closed at 71.67 on Monday.

5 things to know about the rupee’s rise against the dollar

1) The rupee got a boost today after the outcome of RBI’s board meet removed uncertainty over a rift over policy decisions between the government and the central bank. Among other things decided at the RBI board meet, the central bank agreed to form a panel to study a demand for sharing a part of its capital.

“The outcome of the board meeting suggests that a direct confrontation has been avoided and the more contentious issues have been deferred to committees," said Sonal Varma, chief India economist at Nomura Inc. “Efforts have been made to preserve the RBI’s operational autonomy."

Another economist, Radhika Rao of DBS Bank, said: “Easing tension between the RBI and the government is likely to be positive for INR assets, particularly as the central bank is seen to retain its operational autonomy," she said.

2) The rupee has been a big beneficiary of the recent tumble in global oil prices. The rupee had hit a record low of 74.4825 per dollar on October 11, when Brent crude had rallied above $85 on supply concerns in the run-up to US sanctions on Iran coming into effect from November 4. Since then global crude prices have eased to around $65, easing some concerns about widening of India’s current account and fiscal deficits. India’s current account deficit had widened to a four-quarter-high at 2.4% of gross domestic product (GDP) in April-June on the back of rising crude oil prices.

3) The next trigger for the rupee’s performance will be the outcome of the state elections, say analysts. The counting of votes in five states, including Madhya Pradesh, Rajasthan, and Telangana, will be held on December 11.

4) The rupee has also been boosted by recent inflows from foreign portfolio investors. FPIs have so far in November invested net $0.5 billion in equities and $0.8 billion in debt after withdrawing massive amounts in September and October, says forex advisory IFA Global, which adds that the markets are likely to take the outcomes of the RBI board meet “positively".

5) Despite its recent turnaround, the rupee is down over 10% against the US dollar so far this year. Concerns about India’s twin deficits in the wake of higher crude prices, rate hikes by the US Federal Reserve and pullout by foreign investors from India’s markets have hurt the rupee this year.

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