RUPEE HITS 16-MONTH HIGH ON HOPES OF CAPITAL INFLOWS

The rupee surged to 16-month high of 65.69 per dollar on hopes of capital inflows and strong gains in equity markets post the BJP's stellar show in state polls. The rupee closed at 65.69 per dollar on March 15, extending its strong gains for second day of the week as exporters aggressively offloaded the US currency ahead of the Fed meet outcome. The domestic currency had gained a massive 78 paise to end at a nearly oneand- a-half year high of 65.82 against the US dollar on March 14. This was the highest closing of the rupee since November 6, 2015 when it had ended at 65.76. Massive capital inflows on hopes of more reform measures following BJP's strong showing in the recently held state elections spurred the rupee's biggest rally since early 2015. The domestic currency has risen 2.23 per cent since the beginning of the year. Forex market sentiment soared on hopes that BJP's stellar show in state polls would pave the way for the Modi government to focus on key reform measures. The BJP's thumping victory in Uttar Pradesh and substantial gains made in other states will facilitate reforms as the ruling party inches closer to a majority in the Rajya Sabha, Moody's Investors Service said. On the global front, the greenback traded little changed against major counterparts ahead of interest rate decision from Federal Reserve even as investors' awaited cues on the central bank's future monetary policy. The much-anticipated turnaround on the economic front has opened up a barrage of foreign capital fund flows into India. Foreign investors pumped in over Rs 10,000 crore in the Indian capital markets this month so far. Bullish macro data, which showed that the country's industrial production bounced back in January, expanding by 2.7 per cent year-on-year, and exports growing at five-year rate in February is also suporting the rupee climb. Global rating agency Fitch has said the Indian economy will grow by 7.1 per centin the current fiscal before stepping up to 7.7 per cent in the next two financial years.

In the week to March 10, the rupee had staged a stunning rebound and powered ahead to end at 66.60 against the dollar on sustained selling of the US currency by banks and exporters. The domestic currency largely withstood initial lacklustre performance and a shift to much more hawkish Fed with aggressive rate hikes priced in for this year. Though the overall economic outlook for the US remained fairly buoyant speculators are betting on the Fed raising US interest rates beyond March.