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Rupee nears 17-month high against US dollar

LiveMint logoLiveMint 16-03-2017 Ravindra N. Sonavane

Mumbai: The Indian rupee on Thursday strengthened for the fourth consecutive session to hit near fresh 17-month high against the US dollar, tracking its Asian peers as the US Federal Reserve raised interest rates without accelerating its timeline for future tightening.

Gains in rupee was also due to narrowed trade deficit data for February.

The rupee opened at 65.39 a dollar and touched a high of 65.24, a level last seen on 30 October 2015. At 9.15am, the home currency was trading at 65.25, up 0.65% from its previous close of 65.82.

The Fed raised interest rates by 25 basis points and continued to project two more increases this year, signalling more vigilance as inflation approaches its target. One basis point is one-hundredth of a percentage point.

“The recent US rate hikes could mark the beginning of a significant shift in the global interest rate environment, with benchmark US policy rates settling higher over the long term than current market expectations,” according to Fitch rating.

Among Asian currencies, South Korean won was up 0.1%, Taiwan dollar 0.47%, China renminbi 0.29%, Malaysian ringgit 0.24%, Philippines peso 0.22% and Indonesian rupiah 0.22%. However, China offshore was down 0.36%, Singapore dollar 0.26% and Thai baht 0.09%.

Data released by the commerce ministry showed exports grew 17.48% to $24.5 billion in February, while imports rose 21.76% to $33.4 billion in the same month, leading to a trade deficit of $8.9 billion, the lowest in five months.

“The trade data suggest that exports have finally started to recover, but much of the recovery in imports has been largely driven by higher prices and not as much by volumes. In particular, low core import volumes are a clear sign of still-subdued domestic demand,” said Nomura Research, in a note to its investors.

“In our view, the spike in gold imports in February is likely a one-off and not the start of a trend. We expect the current account deficit to narrow to 2% of GDP in Q1 2017 from ~2.5% in Q4 2016. In 2017, we expect India’s current account deficit to widen marginally to a still-sustainable 1.3% of GDP in 2017 from 0.8% in 2016, owing to higher commodity prices and our expectation of a domestic demand recovery in H2 2017,” Nomura report added.

So far this year, the rupee has become the third-best performing currency in Asia after South Korean won and Taiwanese dollar. It gained nearly 3.6% in this period.

The benchmark Sensex index rose 0.31% or 92.06 points to 29,490.17. So far this year, it has risen 11.3%.

The 10-year bond yield was trading at 6.773%, a level last seen on 2 February, compared to its Wednesday’s close of 6.827%. Bond yields and prices move in opposite directions.

So far this year, foreign institutional investors have bought $2.90 billion and $627.30 million from local equity and debt markets, respectively.

The dollar index, which measures the US currency’s strength against major currencies, was trading at 100.61, down 0.13% from its Monday’s close of 100.74.

Bloomberg contributed this story

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