Rupee gains 69 paise, hits highest level since June on bumper FCNR inflows

The Indian rupee on Thursday opened 69 paise higher against the US dollar at 94.29, marking its strongest level since late June.

 

The domestic currency touched an intraday high of 94.27 in morning deals, its highest level since June 29, according to Bloomberg data. It had settled at 94.98 against the dollar on Wednesday.

 

The rupee’s gains were supported by a rise in India’s foreign exchange reserves following the Reserve Bank of India’s (RBI’s) special dollar-rupee swap facility or Foreign Currency Non-Resident Bank (FCNR-B) deposit.

 

The rupee appreciation comes after India attracted a much larger-than-expected $136.38 billion in foreign inflows through the special schemes. The inflows have bolstered the country’s forex reserves, strengthening the RBI’s ability to manage external shocks and support the rupee. READ MORE 

VK Vijayakumar, chief investment strategist, Geojit Investments, said that funds mobilised under the FCNR(B) scheme has come way above the consensus estimates. The implication of this from the market perspective is that the rupee will stabilise, imparting confidence to FIIs.

 

 

"With improving growth and earnings prospects, FIIs are likely to continue buying in India, despite the elevated US bond yields," he said. The ‌measures was unveiled in June when surging oil prices threatened to push India's balance of payments into deficit, were aimed at attracting stable dollar inflows as the country's import bill rose amid supply disruptions linked to the US-Iran conflict. 

The RBI's diaspora-focused foreign-currency deposit programme accounted for the bulk of the inflows, drawing far more than the $80 ​billion to $90 billion economists had anticipated.

 

Indian banks mobilised $127.23 billion through non-resident foreign-currency deposits, alongside $3.89 billion in external commercial borrowings and $5.26 billion in ​overseas foreign-currency borrowings, the RBI said in a statement. "Overall, the rupee continues to trade with a firm bias around the ₹95 level, with RBI intervention and strong flows currently offsetting the negative impact of higher oil and global yields. As RBI has got $137 billion of FCNR deposits/ECB for a period of 3-5 years its short term short positions of $136 billion can get cut through these deposits. It will, therefore have to buy $ only for the 3-5 years’ period which is easily manageable for the RBI.  With such huge mobilisation of deposits the RBI has got sufficient funds to play and keep rupee well within control," Anil Kumar Bhansali, head of treasury, Finrex Treasury Advisors LLP, said.