Re Hits 2-Year High as Dollar Inflows Likely to Intensify
Higher real interest rate to attract overseas investors to India debt assets
Mumbai: The rupee hit a two-year high after exporters sold their foreign-currency receivables on expectations that positive real interest rates would induce further buying of Indian debt assets by overseas funds, hardening the local currency in the bargain. Therupeegainedabout0.60%or38paisato closeat63.70,thelevellastseenonJuly23two years ago. The Reserve Bank is believed to have intervened to curb the local unit’s sharp rise. An engineering conglomerate and an IT company were seen selling dollars heavily. “A lot corporate (dollar) selling has emerged triggering a rally in the currency market,” said Ashish Vaidya, head of trading at DBS Bank. “They were earlier waiting for a crucial level to be breached before they cover their receivables.”
“We may see continued interest in the India’s debt investment with a reasonably higher real interest rate wooing overseas investors,” he said.
A real interest rate is the return savers or investors obtain after adjusting for inflation. Therealrateisthenominalrateminusinflation. During the day, the rupee hit a high of 63.60 to the dollar after the Reserve Bank announced its bi-monthly policy maintaining its stance as ‘neutral’, which limits further rate cut possibilities. “The currency market was a bit apprehensive of the RBI”s stance,” said Anindya Banerjee, analyst at Kotak Securities. “With a ‘neutral’ stance, RBI is unlikely to cut the policy rate further this fiscal year. This will help keep the real interest rate higher, a key trigger for foreign portfolio investors betting big on domestic debt securities.” (Inverted scale)