India's currency has shaken off weeks of sluggishness and found its feet again. On Wednesday the rupee stayed firm for a fourth trading session in a row on the forex market, climbing 5 paise in morning trade to 95.77 against the dollar. A currency that had been groaning under pressure until recently has suddenly steadied, and the obvious question on every Indian's mind is how. The answer lies in five big forces that have loosened the dollar's grip.
The rupee opened Wednesday at 95.70 per dollar on the interbank foreign exchange market and moved to 95.77 during trade, a gain of 5 paise over the previous close. A positive mood in domestic equities, fed by steady buying from foreign institutional investors (FII), has added further momentum to the currency's advance.
How much the rupee has gained lately
The numbers tell the story. On Tuesday the rupee jumped 17 paise to close at 95.82 per dollar. Over the two sessions before that, it had already piled on a hefty 74 paise. Meanwhile the dollar index, which measures the greenback against six major currencies, slipped 0.12 percent to 101.14. Equities were in a buoyant mood too, with the Sensex leaping 682.57 points to 77,448.49 and the NSE Nifty rising 186.85 points to 24,172.20.
The five reasons behind the rebound
Softer crude oil: Brent crude is currently trading around $85 a barrel, well below the $100-plus levels it had touched not long ago. Cheaper oil trims India's import bill and takes a good chunk of the pressure off the currency.
The RBI's intervention: The Reserve Bank of India has been steadily selling dollars and buying rupees in the foreign exchange market for some time. By pumping billions of dollars into the market, that strategy has directly propped up the local unit.
Stronger dollar inflows: Moves by the central bank and the government have lifted both foreign currency deposits such as FCNR(B) and foreign investment. That has increased the supply of dollars in the domestic market and lent the rupee support.
Dollar selling: Exporters and banks have offloaded dollars heavily over the past few days. The upshot is a bigger pool of dollars in the market, which has helped push the rupee higher.
FPI confidence: Foreign portfolio investment (FPI) in equities has also been strengthening in recent days. This flow of overseas capital has given the currency an extra shoulder to lean on.
Taken together, favourable conditions on both the domestic and global fronts have handed the rupee this strength. If crude prices stay in check and foreign investors keep the faith, the currency could hold on to this trend in the sessions ahead.
