Rupee may not breach 64/$ level

Prospects of a stable government at the Centre with a strong reforms agenda is attracting both foreign portfolio investors (FPI) and foreign direct investment into the country, helping the rupee appreciate 5% during the calendar year 2017.

The rupee on Tuesday closed 0.09% higher at 64.50 to a dollar over the Monday's close, ahead of key macroeconomic data on inflation and industrial production, both of which will be announced today.

C Venkat Nageswar, deputy managing director in charge of global markets at the State Bank of India, said, "I don't expect the rupee to breach the Rs 64 level against the dollar. The rupee cannot be swinging one way. Once the forward premiums come down, importers will be tempted to come into the market and hedge their positions."

The US Federal Reserve's soft guidance on interest rate hike is forcing the foreign investors to flock to markets where the returns are attractive.

Jamal Mecklai, currency expert and chief executive officer of Mecklai Financial Services, told DNA Money, "Plenty of money is flowing in from the foreign portfolio investors which is helping the rupee to appreciate, and to some extent, RBI is unable to intervene due to the excess liquidity. But this situation will turn, I think RBI will see to it that there are different entities in the market like the mutual funds, pension funds, primary dealers which may be enabled to encourage to operate in the debt market in a bigger way.

So there will be buying at different levels. They need to do this else all the money will flow into the offshore non-deliverable forward markets"

Seeing the renewed interest in the Indian market RBI on March 31, increased the investment limit on the central government bonds by Rs 11,000 crore to Rs 2. 31 lakh crore. Almost 77% of the limit is already utilised, according to bond market dealers. And in the corporate bond market investors have utilised 80% of their total limit of $51 billion.

"Raghuram Rajan was holding the rupee close to his chest thinking that the global growth is going to collapse but now global growth seems to be a bit stable, so RBI can see to it many entities enter the market," Mecklai said.

Abheek Barua, chief economist, HDFC Bank, said in a report, "We argue that the tepid intervention from the RBI is perhaps driven both by the abundance of rupee liquidity that is potentially inflationary and its reassessment of the 'fair- value' of the rupee. While some residual momentum could still be left in the rupee, we see the likelihood of a turn in the trajectory as we go into the new fiscal year driven both by the renewal of positive sentiment towards the US dollar and a more aggressive stance from the RBI. We believe that these are good levels for importers to think of hedging positions and on the flip-side exporters to wait awhile if they are able to."