Mumbai: The Indian rupee extended its gains for the second week in a row and flared up by 105 paise to close the week at 2-1/2-month high of 53.71 against the Greenback on strong local equities triggered by delay in the implementation of controversial GAAR by the government and a fall in wholesale inflation for December boosted rate cut hopes.
Sustained dollar selling by exporters and some banks amid continued foreign funds inflow in local stocks also kept the rupee firm.
At the Interbank Foreign Exchange (Forex) market, the domestic unit resumed the week a tad higher at 54.75 as against last weekend's close of 54.76, but touched a low of 54.88 at mid-week on fresh dollar demand from importers and some weakness in capital markets on Wednesday.
Later, it bounced back with a vengeance after the government allowed oil marketing companies (OMCs) to hike diesel price in small quantum periodically, which might help to recover their under recoveries and reduce the burden of fiscal deficit of the government.
The rupee then touched an intra-day high of 53.70 before concluding at 53.71 --highest closing since November 1, 2012, showing a rise of 105 paise, or 1.92 peercent. Last week, it had risen by 31 paise, or 0.56 percent.
The Indian benchmark sensex closed the week sharply up by 375.40 points, or 1.91 percent, while FIIs injected USD 697.34 million in the first four days of the week.
On Monday, the governent said that it has postponed implementation of controversial General Anti-Avoidance Rules (GAAR) by two years to April 1, 2016, which was aimed at checking tax avoidance by overseas investors, giving a big relief to these foreign investors.
Inflation based on wholesale prices (WPI) declined to 7.18 percent in December compared to 7.24 percent in November, which may prompt the Reserve Bank to cut key interest rates in its policy review on January 29.
Meanwhile, retail inflation rose to 10.56 percent in December from 9.90 percent in November.
Mr. Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said, "The INR started the week on a strengthening note, but pared gains for next two sessions. The pair then reversed the weakness into sharp gains towards the end of the week moving out of the last right weeks of consolidation. There has been lot of policy action from the government which represents to be landmark decisions supporting gains in domestic equity markets and INR."
"After the WPI hit a three year lows raising expectations of rate cut by the RBI, the government deferred GAAR till April 2016 for FII's and NRI's investing through FII's. The partial deregulation of diesel prices was the strongest trigger for the INR to strengthen by over 2 peercent in just last two sessions, which will reduce the burden of fiscal deficit of the government," he added.
"The fiscal consolidation shall benefit the government in long run by better sovereign ratings lowering of public debt which is a positive sign for the economy and the markets. Strong support is placed at 53.50 mark whereas resistance is pegged at 54.30 levels," he further commented.
The RBI fixed the reference rate for US dollar and Euro at 53.9465 and 72.2050 from 54.5390 and 72.2945, respectively in the last weekend.
The rupee premium for the forward dollar ended mixed on alternate bouts of buying and selling.
The benchmark six-month forward dollar payable in June finished slightly lower at 163-165 paise from last weekend's level of 164-166 paise, while far-forward contract maturing in December ended higher at 321-1/2-323-1/2 paise from 314-316 paise last weekend.
The rupee recovered smartly against Pound Sterling to end the week at 85.63 from preceding weekend's level of 88.23 and also rebounded against the Euro to finish at 71.75 from last weekend's level of 72.61.
It too shot up further against the Japanese Yen to close at 59.81 per 100 Yen from 61.65 last weekend.
First Published: Saturday, January 19, 2013, 15:54