The decision on leaving the bond buying programme unaltered by the US Federal Reserve proved to be a boon for the rupee.
The domestic currency on Thursday appreciated by 161 paise and ended at a more than one-month high of Rs 61.77 per dollar. Forex experts gave credit of this rally to the increase of foreign inflows and fresh dollar selling by exporters and banks in the wake of a weak US currency.
The Fed late on Wednesday night announced to continue with its $ 85 billion stimulus plan came as a sight of relief to traders and investors. The decision means that there is no immediate concern of capital outflows. Backed with a positive sentiment, the rupee opened strong at Rs 61.70 per dollar. The currency gained 2.54 per cent which is the biggest gain in a single day since August 29, when it rose by 3.27 per cent.
Heavy FII buying in the equity markets was another major reason which supported the currency. After many days, FIIs picked up shares worth a net Rs 3,543.84 crore. While rupee surged, the dollar index fell by 0.15 per cent against a basket of six major global currencies.
Experts further added that the forward dollar premiums also dropped as exporters were constantly seen selling the dollar. The benchmark six-month forward dollar premium payable in February fell to 236- 241 paise and far-forward contracts maturing in August tumbled to 437-442 paise from their previous close.
With rupee staying on the appreciation path and the Fed’s decision to continue with the stimulus has given some room the Reserve Bank. After these recent developments, new RBI Governor Raghuram Rajan has a little space to present a monetary policy which strikes a balance between boosting economic growth and containing inflation.