The rupee rose 77 paise to close at a three-month high of 69.85, regaining the 60s level following signals from the US Federal Reserve that interest rates in America are unlikely to rise. The Indian currency also got support from lower crude oil prices, which remained below the $60-per barrel mark.
The rupee has been the top gainer among Asian currencies in November, after the Indonesian rupiah, as the domestic unit stands to gain the most from falling crude prices. In a speech in New York, the US Fed chairman Jerome Powell said that interest rates are close to neutral — the level at which they neither hold back growth nor aid it. This was seen as a suggestion that the US central bank might keep rate hikes on hold next year to assess the effects.
Besides making international vacations cheaper during Christmas and bringing down the cost of all imports, a stronger rupee has wider macroeconomic implications. The stronger rupee — by helping keep inflation in check — has improved the fundamentals for interest rates.
The last time the rupee ruled in the 60s was on August 24, when it had finished at 69.91. In the commodities market, the international oil benchmark Brent crude was trading 1.04% lower at $58.1 a barrel. The US Fed signal also improved risk appetite among global investors, triggering a rally in Indian stocks. The sensex rallied over 453 points to close 1.3% higher at 36,170, while the broader NSE Nifty jumped 130 points, or 1.2%, to end the session at 10,859.
The developments in the crude and foreign exchange market are positive for India as a decline in oil prices may push inflation and current account deficit lower.
Besides buying by importers, a slowdown in dollar inflows towards the year-end is expected to keep the rupee appreciation in check. This has reduced the chances of the RBI hiking rates in its monetary policy review next week.