Rupee gains as global risk appetite improves

The rupee extended its gains today on the back of foreign fund inflows and dollar weakness, with a rate cut in China in late trade further boosting a revival in global risk sentiment.

Market participants expect near-term correction in the rupee-dollar exchange rate. The rupee has gained for a third day, bouncing back from a record closing low of 56.50 a week earlier.

Today, the rupee closed at more than the two-week high of 54.95 against the dollar. The currency registered this week’s best daily gain of 0.7 per cent or 42 paise. Traders said dollar sales by foreign banks and better global risk appetite helped, while consistent dollar demand from oil companies capped the gains through the day. Companies repaying foreign debt obligations were also seen buying dollars.

China’s central bank cut benchmark interest rates by 25 basis points today, thereby improving investor appetite globally. China delivered twin surprises on interest rates, cutting borrowing costs to combat faltering growth and giving banks additional flexibility to set competitive lending and deposit rates in step along the path of liberalisation. The 25 bps cut brings the official one-year borrowing rate to 6.31 per cent and the one-year deposit rate to 3.25 per cent.

“The rupee strengthened as the dollar was seen weakening internationally. The rupee holds strong support at 54.50-54.80 levels,” said India Forex Advisors in a note. “We are expecting a short-term correction in the rupee; the overall view is still bearish,” they added.

Foreign funds inflow in the Indian equity market also helped the rupee. According to the Bombay Stock Exchange, there were foreign fund inflows of Rs 675 crore and the markets closed with above one per cent gains today. The dollar index against six major global currencies was trading at 82.06 as compared to 82.32 a day before. Also, the euro strengthened marginally to 1.2595 from 1.2582 levels seen yesterday.