Mumbai, Sept. 20: US Federal Reserve chairman Ben Bernanke continues to influence the Indian markets. On Thursday, the rupee surged to a nine-year high after breaking through the psychological barrier of 40 to a dollar.
It ended at 39.89 against the greenback and observers said the Indian currency could breach the 39-level by the end of the year.
The 32-paise appreciation in the value of the rupee was sparked by the strong flow of dollars into equity markets.
“The interest rate differential generated from the US rate cut will lead to a greater interest in higher-yielding assets in India,” a dealer said.
The dollar was weak against other currencies as well — and this also provided the ballast to the rupee.
This is the first time since May 1998 when the rupee has breached the 40-mark. On May 13, 1998, the rupee had closed at 39.85 per dollar.
The Indian currency today opened strong at 40.05 per dollar from yesterday’s close of 40.21 per dollar.
In late morning trades, it rose past the 40-mark to a high of 39.87 a dollar.
Dealers said at this point nationalised banks stepped in to buy dollars — apparently at the behest of the Reserve Bank of India.
The dollar-buying binge by banks trimmed the rupee’s gains but it couldn’t prevent the Indian currency from closing at 39.89.
As expected, exporters and the government reacted swiftly to the rupee’s gain.
The Federation of Indian Export Organisations said if the rupee continued to rise against the dollar, around 8 million people could lose their jobs by the end of this year.
It may be recalled that an appreciation in the rupee’s value since the beginning of this year had hit textiles, which saw exports dip sharply.
“It is a new situation and it requires a new response,” Union commerce minister Kamal Nath said in New Delhi even as he hinted that the government could consider providing some relief to exporters.
Forex analysts say the rupee may cede some of its gains as a correction in the equity markets is expected.
However, they reckon that over a slightly longer horizon, the rupee will appreciate against the dollar as foreign investors place bigger bets on the Indian markets.
Stock markets consolidated gains today with the sensex rising 25 points at 16347.95 points following selective buying by foreign funds, despite heavy selling in technology counters because of the rising rupee.
The sensex moved erratically in a narrow range of 16415.88, a lifetime intra-day high, and 16261.26.
It later ended the day at 16347.95 against yesterday's close of 16,322.75, a small rise of 25.20 points or 0.15 per cent.