Analysts expect rupee to strengthen over next few weeks

MUMBAI: The rupee stood out among its Asian peers last week, and it owes its sterling rise in part to the $2 billion L&T-Schneider deal.

The Reserve Bank of India, too, didn’t surprisingly intervene, underscoring its intent to allow the local unit to find its value in the face of recent inflows of dollars.

The rupee gained about 2% in the past five trading sessions, and that has definitely lessened the damage previously done. In the calendar year to date, the rupee ranks third from the bottom in the continent, having lost 2.76%.

“We may see further strength in the rupee in the near term as capital flows return to the emerging markets,” said B Prasanna, group head of global markets sales, trading, and research, ICICI Bank. “The dollar remains defensive after the US Fed announced its average inflation targeting framework.”

Over the past one week, foreign portfolio investors invested a net of Rs 6,589 crore, show provisional data from ETIG. L&T is said to have received money from Schneider Electric, which bought the electrical and automation businesses of the Indian conglomerate. L&T did not comment.

The sharp surge in the rupee’s value during the past week has led to a breakout in the 74.50-76.50 trading range, dealers said.

The US Federal Reserve shifted its focus to tackling joblessness and boosting growth, scotching speculation that the accommodative rates will go away anytime soon. Since August 24, the US Dollar Index, which measures the unit against select other major currencies, dropped about 100 basis points to 92.30.

“Significant central bank intervention, amid a bout of corporate/investment inflows, was factored in” said K N Dey, founder – United Financial, a forex firm. “But the central bank departed from its predictable stance observed in the past few months.”

Mint Road has otherwise been buying dollars through state-owned banks, boosting India’s forex reserves to a record $538 billion.

“The rupee is likely to strengthen in the next few weeks amid overseas inflows that will have a much higher impact without any RBI intervention,” said Kunal Sodhani, AVP – global trading centre at Shinhan Bank (India). “The local unit may rise up to 1.2 percent this week from the current level.”

It closed at 73.39/$ Friday versus 73.82 a day earlier.

“Volatility in the currency market has gone up last week,” Dey said.