On Tuesday, the rupee witnessed the highest rise in two weeks, on the back of the buzz that the Bharatiya Janata Party (BJP) would win the Lok Sabha elections and unveil policies to spur economic growth. Exit polls predicting a majority for the National Democratic Alliance led to domestic markets attracting dollar flows from foreign institutional investors (FII), resulting in the rupee breaching the 60-a-dollar mark.
The rupee ended at 59.67 to the dollar on Tuesday, compared with the previous close of 60.05 to the dollar, gaining 0.6 per cent — the most since April 25. During intra-day trades, the rupee touched a high of 59.59 to the dollar.
“The rupee is buoyed by the outcome of the exit polls,” said Paresh Nayar, head of currency and money markets in Mumbai at FirstRand.
However, according to currency dealers, the Reserve Bank of India (RBI) has been mopping dollar flows through state-run banks, due to which the appreciation in the rupee was capped. “The foreign banks were selling dollars and the state-run banks were buying dollars. This is done because the central bank wants to bolster its foreign exchange reserves,” said a currency dealer with a state-run bank.
Since the start of 2014, the rupee has appreciated by 3.4 per cent and experts believe further appreciation may be in the offing after May 16 when the election results will be out. According to the Street, the rupee might even hit 59 a dollar, although the gains are seen temporary due to intervention by the central bank.
According to currency dealers, RBI is mopping up dollar flows of $ 1-2 billion every day from the market. The latest data shows that RBI’s foreign exchange reserves rose $ 1.94 billion for the week ending May 2 to $ 311.86 billion. The reserves are near a level last seen in November 2011.