Despite dollar purchases by the Reserve Bank of India (RBI), the rupee on Wednesday hit a fresh 16-month peak of 65.69 against the dollar amid hopes of a less hawkish tone on interest rates by the US Federal Reserve at the end of its two-day policy meeting. Huge capital inflows also added to the rupee’s firmness.
The currency resumed on a strong footing at 65.76 from Tuesday’s closing level of 65.82 and gained further to hit a high of 65.41 on heavy dollar unwinding by banks and exporters. However, the RBI intervened in the market through state-run banks and capped the steep rise. The RBI had mopped up dollars in the last two days to stem the rupee’s rise. The rupee finally settled at 65.69, showing a smart gain of 13 paise, or 0.20 per cent.
However, the stock market ended subdued a day after the broader NSE index hit a record high and the benchmark BSE index hit two-year highs following the BJP’s win in the state elections. Bonds also rallied the most in two weeks on Wednesday. The benchmark 10-year bond yield fell as much as 9 basis points before ending the day at 6.83 per cent, its lowest since March 3, bolstered by a strong currency ahead of the Fed meeting and on short covering.
The Sensex closed at 29,398.11, down 44.52 points, or 0.15 per cent. The 50-scrip NSE barometer retreated from its record high to end at 9,084.80, a fall of 2.20 points, or 0.02 per cent.
Foreign investors made net investments of Rs 4,087 crore ($625.76 million) worth of shares on Tuesday, according to the BSE data. That marked the biggest single-day net purchase since February 17.
The domestic currency has risen 2.23 per cent since the beginning of the year. On Tuesday, the rupee had rallied overnight by a hefty 78 paise — its biggest single day spike in recent past — to end at 65.82 in the aftermath of the decisive win for the BJP in state polls.
The BJP’s thumping victory in Uttar Pradesh and substantial gains made in other states will facilitate reforms as the ruling party inches closer to a majority in the Rajya Sabha, Moody’s Investors Service said in a statement. The victory was widely seen as a strong endorsement of Prime Minister Narendra Modi’s agenda.