Rising for the second straight session, the rupee today ended marginally higher by two paisa at 63.86 against the US Dollar. It oscillated in a narrow band of 63.74 and 63.95 during the day.
The rupee resumed marginally positive at 63.85 against its previous close of 63.88 at the Interbank Foreign Exchange (forex) market on the back of dollar inflows amid bullish equities. It later strengthened to a high of 63.74 in late morning deals but subsequently started losing ground even as the dollar gained some positive traction against other Asian peers. After touching an intra-day low of 63.95 towards the tail-end trade, the local currency managed to recoup.
For an economy like India that relies on imports for more than 80% of its daily crude requirement, the strong rupee comes as a major blessing in disguise. A stronger rupee means lower landed cost of crude oil, which is anyways expressed in dollar terms. A lower landed cost of oil will not only be anti-inflationary but will also reduce the burden on the government finances.
Foreign portfolio flows are largely predicated on the strength of the INR. FPI’s have pumped in nearly $14.5 billion into debt and equity between February and April Last year. This is largely due to a strong rupee. A strong rupee means that FPI’s do not lose out their nominal gains due to currency depreciation. A strengthening INR induces FPI’s to rush into India as they get the dual benefit of above average nominal returns and currency dividends.
Apart from FPI flows, FDI flows have also been robust in the last 2-3 years. FDI investors are long term investors, a predictable trajectory of the INR is critical. That has helped FDI flows substantially and it is hardly surprising that India has become the largest recipient of FDI; bettering even China last few years.
For India, a strong INR is favourable not only for its macros, but also for its capital and portfolio flows. Not surprising that the RBI has not been overtly intervening to stem the strength in the INR. That could be the paradigm going ahead!
Courtesy/By: Jalaj Mahajan
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21 Jan 2018
