Mumbai: Enlarging gains for the third week in a row, the Indian rupee rallied by another 45 paise to log its one-and- half-month closing high of 61.87 against the Greenback during the week under review on persistent USD selling by exporters and banks amid surprise key interest rate cut by the central bank Thursday morning.
Continued foreign funds inflow in encouraging local equity and debt markets amid fall in the trade deficit in December 14 over December 13 also kept the rupee optimistic.
After closure of the market on Monday, government data showed that industrial production grew 3.8 percent in November while retail inflation moved up to 5 percent in December, which was under manageable limit of the apex bank that gave scope for the central bank to cut the key rate.
In a surprise move on Thursday morning, the Reserve Bank of India (RBI), before announcement of its monetary policy on February 3, slash the key interest rate (repo rate) by 25 bps to 7.75 percent with immediate effect on softening inflation to boost the economy, which has positive impact on market mood.
At the Interbank Foreign Exchange (Forex) market, the domestic unit commenced strong at 62.15 a dollar from previous weekend's close of 62.32 and declined further to a low of 62.2625 on mid-week weakness in local stocks.
Also, RBI was likely buying dollars via state-run banks starting at around 62.00 levels to prevent the further appreciation and dollar short covering after Swiss National Bank removed the price band on currency also hit the rupee.
In the global market, the euro fell towards a 11-year low versus the dollar as reports said officials fueled speculation the European Central Bank will begin buying government bonds as early as next week to stave off deflation, which someshat aided the rupee rise.
The Indian benchmark S&P BSE sensex zoomed by 729 points o 2.66 percent -biggest gain in last over five years- on RBI's rate cut while FPIs picked up shares worth USD 353.02 million during the first days of the week, as per Sebi data.
As a result, the rupee got a boost and it moved up to log its two-month intra-week high of 61.47 before falling back of likely RBI's intervention to settle at 61.87, still showing a rise of 45 paise or 0.72 percent. In straight three week, it has flared up by 170 paise or 2.67 percent.
The rupee touched an intra-day high of 61.47 a dollar -- level not seen since November 13, 2014 -- following a sharp rise in local equities.
Mr. Pramit Brahmbhatt, Veracity Group CEO said,"Rupee appreciated almost by 0.75 percent in the week, taking cues from local equities which traded strong with the help of FIIs. This helped Rupee to trade strong for the week against elevated dollar. Also a cut in interest rates by the Reserve Bank of India supported the movement of Rupee. The trading range for the Spot rupee is expected to be within 61.40 to 62.40."
The rupee premiums on forward dollar dropped sharply on persistent receiving by exporters.
The benchmark six-month forward dollar premium payable in June remained weak to 199.5-201.50 paise from last weekend's level of 218-220 paise and far-forward contracts maturing in December fell back to 395-397 paise from 423-425 paise.
The RBI fixed the reference rate for the US dollar at 61.8933 and 72.0067 respectively as against the previous weekend's level 62.3953 and the euro at 73.6140.
The rupee also rallied further to 94.07 per pound from from the preceding weekend's level of 94.41 and also shot up against the euro to 71.66 from 73.61. However it fell to 53.02 per 100 yen from 52.25 last week.