A glut of dollars into the market on sustained buying interest in debt and equities by foreign institutional investors (FIIs) has led to a firming trend in the rupee.
The rupee on Friday hit an eight-month low of 59.89 to the dollar following the demand for currency by exporters and foreign institutional equity players, bankers said. "The rupee is gently strengthening on incremental dollar inflows. However, it is a bit early to say if the currency would continue to gain against the greenback unless the (forex) inflows sustain current levels," said a treasury head at a foreign-owned bank.
The currency opened firmer at 60.19 against the previous close of 60.32 and ended 58.89 after hitting a high of 59.69.
Reserve Bank of India did intervene in the market to prevent sharp rise in the currency that has hovering over 60 levels for the last eight months. Dollar purchases on behalf of the central bank were through government banks, said a dealer at a private bank.
The demand for the rupee was mainly from foreign equity players who were swapping dollars for the rupee. Their net purchases in equities on Friday were to the tune of Rs 1362.87 crore, which took the Nifty to a new high of 6702.60 before closing at 6695.90.
However, when compared with the first three months of calendar year 2013, FIIs' net equity purchases were lower at Rs 23,284.77 crore as against Rs 54,751 crore of the same period of previous year.
Overall, the markets sentiments appeared to have improved as the current account deficit for fiscal 2014 has sharply fallen to $45 billion versus the previous fiscal's $88 billion.
Besides, falling gold imports due to higher taxes of 15%, oil imports surprisingly showed an easing trend in dollar terms, though marginal. Oil imports in February 2014 were down at $13.70 billion against the previous year's comparable month's $14.13 billion. "Resources are getting priced correctly with the monthly revision in diesel price by Rs 0.50 every month," said an economist with a bank.
"This implies a bit more controlled usage when resources like oil get priced at market rates," he said.
Overall, the new fiscal looks bright and optimism is getting back on the growth front, most bankers said.