Only a few months back several economists opined that rupee will breach the level of 70 against the US dollar. But against the expectations, the rupee is seen to be rallying sharply. A host of factors are responsible for it and currently the rupee is trading at a level which was perhaps seen 2 years back.
Beginning this calendar year, the domestic currency registered a surge of over 6% as against the US dollar. And since the end of June alone, it surged by 1.5% to levels of 6.3.63 /dollar today, marking it to be the best performing currency globally.
So, here is a take on some of the queries relating to the rally in domestic currency
Of the other factors, the recent stimulant that has drove rupee to this level is the Wednesday's monetary policy review meet which reduced repo rate by 25 basis points to 6%.
Why the repo rate impacted domestic currency value?
The scenario with the bond and equity market which already had factored in the expected decline in repo rate was not at par with the rupee. And even when domestic investors in bond were squaring off their position, foreign investors were cheering the Indian bonds and this increase in foreign funds pushed the domestic currency to level past the 64 mark. And post the attainment of this mark which is deemed to be a psychological support level, panic selling in dollar was witnessed which moved the value of rupee higher.
Increased FPI in both equity and debt market further triggered surge in rupee value this year
In all the foreign portfolio investors have bought in USD 8.8 billion and USD 17.7 billion in Indian equity and debt markets so far this year and when foreign investors buy they need to sell dollars and buy rupee so the increase in demand for domestic currency has propelled its value to a higher side.
Also, dollar index that is dampening has garnered interest of investors in other emerging markets.