Rupee closes at fresh 20-month high against US dollar

Mumbai: The Indian rupee on Friday strengthened to a fresh 20-month high against the US dollar, a day after Reserve Bank of India (RBI) increased reverse repo rate and expressed concerns about inflation.

The rupee closed at 64.28—a level last seen on 11 August 2015, up 0.40% from its Thursday’s close of 64.54. The rupee opened at 64.70 a dollar and touched a high of 64.16, a level last seen on 11 August 2015.

According to an Angel Broking report, the currency is likely to appreciate owing to possible clearance of the goods and services tax (GST) Bill by the Rajya Sabha which could boost foreign inflows. Moreover, uncertainty with respect to US President Donald Trump’s fiscal policies will keep the American currency under pressure, in turn supporting the rupee

On Thursday, RBI raised the reverse repo rate to 6% from 5.75%, kept the benchmark repurchase rate steady at 6.25% and cut the marginal standing facility (MSF) rate by 25 basis points (bps) to 6.50%. One bps is a one-hundredth of a percentage point.

The RBI policy corridor is now 25 bps and the objective of narrowing the interest rate corridor is to anchor the weighted average call rate closer to the policy repo rate.

“Narrowing of the policy corridor will ensure that MIBOR fixings/overnight call rates stay close to the repo rate despite surplus liquidity conditions. On bonds, we think the possibility of OMO sales along with bond supply pressure will keep the curve steep. That said, we believe front-end bonds (3-6 year tenors) will continue to see value buying from investors, both foreign and local. We continue to suggest remaining long front end bonds (both outright and versus pay 5year swap),” a Noumura Research report said .

“The RBI’s neutral policy stance with a narrower policy corridor is consistent with our view of continued rupee outperformance,” the report added.

So far this year, the rupee has gained 5.7%, while foreign institutional investors have bought $6.86 billion and $5.35 billion from local equity and debt markets, respectively.

Bond yield gained for the second session to hit a two-week high. The 10-year bond yield was trading at 6.821%, a level last seen on 23 March, compared to its previous close of 6.769%. Bond yields and prices move in opposite directions.

The benchmark Sensex index fell 0.74% or 220.73 points to closed at 29,706.61. So far this year, it has risen 12%.

Asian currencies were trading lower after the US launched missiles against Syria two days after Bashar al-Assad’s regime used gas to kill civilians.

The decision to strike in Syria marked a stark reversal for Trump, who during his presidential campaign faulted past US leaders for getting embroiled in conflicts in the Middle East, Bloomberg reported.

Taiwan dollar was down 0.36%, South Korean won 0.35%, Thai baht 0.23%, China offshore 0.11%, Indonesian rupiah 0.11%, Philippines peso 0.07% and Singapore dollar 0.05%.

The dollar index, which measures the US currency’s strength against major currencies, was trading at 100.64, down 0.03% from its previous close of 100.67.