Rupee gains 5% against the greenback

REVIEW 2003

The rupee dollar exchange rate saw the highest appreciation of almost five per cent in calendar year 2003. The rupee opened at 47.99 in January against the greenback and closed in December at 45.56 to a dollar.

Though the rupee party started in 2002, but the rate of appreciation at five per cent is way above the 1.07 per cent recorded for the last calender year.

The story of appreciation, throughout the year was backed by robust to moderate foreign exchange inflows, in all forms "" ranging from non-resident Indian (NRI) deposits, foreign institutional investors (FIIs) to foreign direct investments (FDIs).

The net result of the this is over $100 billion now. The inflows made way into India owing to the high interest rate differential in the money and debt market with the rest of the world where interest rates have been lower.

During the later part of the year, these inflows found their way into the equity market. This can be best exemplified by the fact that FII inflows in the equity market for the calendar year has been a whopping Rs 30,044 crore compared with Rs 3,576 crore for the last year.

For calender 2003, debt alone witnessed funds flow through FIIs to the tune of Rs 1,506 crore against Rs 534 crore last year.

Calendar 2004 may see an appreciation in rupee dollar rate at least for next 3-6 months. The appreciation will be gradual, said a forex analyst.

The interest rate differential, which was the main trigger for the forex inflows, ceases to be a reason as global interest rates have already started moving up showing recovery in the global economy. Therefore, the forex inflows now will be backed by the persistent performance of the equity market, he added.

The appreciation in rupee could be as much as 8 per cent if the comparison is made between the record lows of dollar- rupee exchange rate at 49.08 in June 2002 and record highs of 45.20 in November 2003 is made.

A historic data analysis reveals that barring 2002, the rupee has never seen an general appreciation on year-on-year basis and rather there has been on an average 2-6 per cent annual depreciation in the value of the Indian rupee as against dollar.

On the other hand, the euro dollar balance has shifted in favour of euro, which clocked a record high of 1.25 to a dollar currently from 1.15 in November.

Analysts say that while conventionally rupee and euro used to move parallel to dollar, in the current circumstances it seems to the reverse owing to RBI intervention in the rupee dollar market. Had it not been the case the rupee could have risen much higher than 45.20.