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MUMBAI: Record foreign fund buying in the stock market with the RBI now remaining on the sidelines in the foreign exchange market, the rupee on Friday rose to a six-month high against the dollar and also recorded its biggest gain in about 20 months. During the day, the Indian currency strengthened 38 paise against the green back to close at 73.40 to a dollar with a weekly gain at 2%, its biggest since December 2018.
According to Abhishek Goenka, founder & CEO, IFA Global, a foreign exchange advisory firm, for weeks rupee was artificially kept week as RBI continued to buy dollar from the market and helped banks use that money to buy bonds, which saw increased supply. “Now since the central bank has let it go, government banks are not buying dollar at important levels and there is month-end dollar selling by exporters, we expect weakness of the dollar (so strength of the rupee) to remain for a while,” Goenka said. He expects the rupee to strengthen till about 72.50 level.
Economists also expect that the current trend of rupee appreciation may not continue. “With persisting large global liquidity and low interest rates, flows into Indian markets got a boost. Against the backdrop of reduced imports and potentially a current account surplus during the current fiscal, weaker dollar and strong equity market flows have led to notable uptick in rupee of late,” said Siddhartha Sanyal, chief economist, Bandhan Bank.
So far in August, foreign funds have net pumped in about Rs 50,000 crore into the Indian stock market, official data showed. This is the biggest net monthly inflow in over a decade, official data showed. Consistent dollar buying by RBI, along with strong FPI flows in recent months, has helped India’s forex reserve to a record level near $540 billion, which is also helping the strength of the rupee. Economists now expect the RBI to continue to buy forex in the coming months, “especially given the heightened macroeconomic uncertainty. On balance, scope for further appreciation in rupee looks limited despite surplus on both current and capital accounts.” Sanyal said.

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