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The rupee on Monday hit a four-month high of 73 against the dollar after India approved the emergency use of two covid-19 vaccines.

Foreign investors continuing to back Indian equity and debt markets, and the weakness in the dollar index amid concerns over global economic recovery due to rising covid infections, also helped the Indian currency.

In intraday, the rupee opened at 72.93 before hitting a high of 72.90 a dollar—a level last seen on 2 September. At closing, the currency settled at 73.02 a dollar, up 0.14% from the previous close. The rupee has gained in seven out of the past eight sessions and was up 1.2% in this period.

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On Sunday, the Drugs Controller General of India (DCGI) authorized the emergency use of Serum Institute’s Covishield and Bharat Biotech’s Covaxin, which clears the way for a mass immunization drive within the next few days.

Foreign investors backed local equities as India reported better-than-expected macro-economic data. Goods and services tax (GST) collections for December stood at 1.15 trillion—the highest ever since the rollout of the indirect tax regime in 2017, while India’s current account stayed in surplus for the third straight quarter to help narrow the trade gap further, indicating recovery in economic activity.

Since 1 October, foreign investors have pumped in nearly $20 billion in equities and $700 million in debt. “We expect the positive domestic data to prevail and keep risk sentiments upbeat onshore," said IFA Global Research in a note to its investors. “The RBI is likely to continue absorbing flows and the intensity of intervention would depend on how the broad dollar behaves." IFA Global said the rupee is likely to trade at 72.90- 73.24 a dollar.

Anindya Banerjee, analyst, Kotak Securities, said the RBI played an extremely important role in keeping volatility in check in 2020. “They sold aggressively when USD rose in value during covid panic in March-April. Then they bought close to $100 billion to prevent the rupee from appreciating, when inflows gushed to Indian capital markets." Banerjee expects the dollar to remain downward in 2021, and rupee to strengthen to 70 levels.

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