Rupee records highest single day gain in three weeks; settles at 86.96

Don't want to miss the best from Business Standard?

The rupee posted its highest single day gain since February 11 on Wednesday because of the weakening dollar, and dollar sales by the state-owned banks on behalf of the Reserve Bank of India, said dealers.

 

The local currency appreciated 0.36 per cent to settle at 86.96 against the dollar. The previous close was 87.27 per dollar. In the current financial year, the rupee has depreciated by 4.09 per cent, and 1.55 per cent in the current calendar year.

 

“The rupee appreciated because dollar index was down in morning, and Asian currencies were also gained because of global cues. We see rupee trading with appreciation bias from here, but in the long term, we see it trading at 88 per dollar to 89 per dollar because we also have one rate cut coming in April,” said a dealer at a state-owned bank.

 

The dollar index dropped 0.6 per cent to 104.9, its lowest level since November 2024, amid concerns over the US growth outlook and uncertainty about the impact of trade tariffs on growth and inflation.

 

The US has implemented 25 per cent tariffs on imports from Mexico and Canada, while doubling duties on Chinese imports to 20 per cent. US President Donald Trump announced that reciprocal tariffs would be slapped on India from April 2.

 

“The tariff announcement should have taken the rupee to the opposite direction… that is why there was so much volatility. But the rupee and other Asian currencies appreciated because there are talks of the removal of tariffs on Canada. So, there is not much certainty about Trump going ahead with the tariffs,” said another dealer at a state-owned bank.

 

 On the other hand, the net liquidity in the banking system improved to a deficit of ~20,416 crore on Tuesday against Monday’s ~1.09 trillion. It improved on the back of RBI’s $10 billion dollar-rupee buy/sell swap conducted on Friday, said experts.

 

“The liquidity improved because rupee liquidity must have come to the system due to the swap, but we have outflows lined up in tax payments. So, the liquidity situation will tighten again,” said Gaura Sen Gupta, chief economist at IDFC First Bank. Last week, the RBI conducted10 billion dollar–rupee buy-sell swap with a tenure of three years.

 

Market participants expect longer tenure swap auctions by the RBI to ease the liquidity condition.

 

“RBI’s recent swap of $10 billion (largest so far) has calmed the market participants’ frayed nerves, indicating the central bank is willing to walk the extra mile to restore sanity, infusing long term liquidity, while keeping the cost dynamics in mind….It should also help corporates in better ALM management even as more buy/sell swaps of longer duration could be considered to shore up reserves and release liquidity to counter the stress,” said an SBI note.