Rupee at one-month high as US interest rates unchanged

Indian currency ended at 65.67 compared with previous close of 66.46 per dollar

The rupee appreciated to a one-month high and bond yields fell, to three-month low after the US Federal Reserve decided to keep interest rates unchanged. In percentage terms, this appreciation in the rupee was earlier seen in September 2013, after Raghuram Rajan had just taken over as governor of the central bank and had announced measures to cut volatility in the rupee.

The rupee ended at 65.67, compared with its previous close of 66.46 a dollar. The rupee had opened at 66.14 to a dollar. It had ended at 65.55 on August 20. In percentage terms, the gain in the rupee on Friday was 1.19 per cent. It had last gained by 2.54 per cent on September 19, 2013, to end at 61.78 a dollar.

“The US Fed decided to hold interest rate, as a result of which the stock market rallied. The rally resulted in renewed interest by FIIs (foreign institutional investors). Today (Friday), custodian banks were seen selling dollars which helped the rupee. The gains also helped government bonds as a result of which, yields fell,” said N S Venkatesh, executive director and head of treasury at IDBI Bank.

The yield on the 10-year bond ended at 7.7 per cent, compared with its previous close of 7.75 per cent. The yield ended near a level earlier seen on June 1, at 7.64 per cent.

Expectations are building up in the bond market that the Reserve Bank of India might cut the repo rate or the rate at which the central bank lends to other banks; bonds might rally further next week.

Meanwhile, data released on Friday showed foreign exchange reserves rose $2.36 billion for the week ending September 11 to $351.39 billion. Foreign currency assets, a key component of foreign exchange reserves, rose $2.31 billion to $327.97 billion.

During the week gold reserves remained unchanged at $18.04 billion.

For the week under review, the special drawing rights (SDRs) rose $18.7 million to $4.07 billion, while India’s reserve’s position with the International Monetary Fund stood at $1.32 billion, recording a rise of $29 million.