Mumbai | The rupee appreciated 81 paise to close at 94.93 (provisional) against the US dollar on Friday after the Reserve Bank announced measures to support foreign capital inflows and strengthen forex liquidity.
Forex traders said the announcements in the RBI policy boosted investor sentiments after the apex bank asserted that the country's forex reserves provide a sufficient buffer against external shocks.
The Reserve Bank on Friday expectedly kept interest rates unchanged for the second time in a row as it weighed the impact of rising energy prices and supply disruptions caused by the West Asia crisis.
At the interbank foreign exchange market, the rupee opened at 95.72, then touched an intraday high of 94.89 and finally ended the session at 94.93 (provisional), registering a rise of 81 paise from its previous close.
On Thursday, the rupee rose 2 paise to settle at 95.74 against the US dollar.
Announcing the second bi-monthly monetary policy for the current fiscal, RBI Governor Sanjay Malhotra said the Monetary Policy Committee (MPC) has unanimously decided to retain the short-term lending rate or repo rate at 5.25 per cent with a neutral stance.
"By holding the repo rate at 5.25 per cent with a neutral stance even while raising the FY27 inflation forecast by 50 basis points to 5.1 per cent, the RBI has drawn a clean line: the rate instrument is reserved for inflation, and the rupee will be defended through the capital account," said Anindya Banerjee, Head of Commodity and Currency Research, Kotak Securities.
The expansion of the Fully Accessible Route to all new 15-, 30- and 40-year G-Sec issuances, the removal of FPI concentration limits, the extension of FCNR(B) hedging support, the PSU ECB swap window, and the restoration of the export realisation period to nine months together amount to the most comprehensive dollar-mobilisation effort since 2013, Banerjee added.
The Centre's simultaneous removal of taxes on foreign investment in G-Secs is the force multiplier, as it addresses the single biggest friction flagged by global bond funds and index providers.
"We see this as constructive for the long end of the G-Sec curve. On the currency, these measures can aid the rupee's appreciation over the near term, provided oil prices stay below USD 100 a barrel.
"We see scope for the rupee to appreciate towards 94 to 94.5 on spot over the near term, with the upside in USD-INR now capped around the 96 mark. Any appreciation beyond 94 would depend on the actual quantum of dollar mobilisation through these newly announced routes and the trajectory of oil prices," Banerjee said.
Reserve Bank governor said the forex reserve stood at a healthy USD 682.3 billion, adequate to provide import cover for about 11 months.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading at 99.22, lower by 0.19 per cent.
Brent crude, the global oil benchmark, was trading down 0.29 per cent at USD 94.75 per barrel in futures trade.
On the domestic equity market front, Sensex declined 116.67 points to settle at 74,243.34, while the Nifty fell 49.85 points to 23,366.70.
Foreign institutional investors offloaded equities worth Rs 4,447.06 crore on a net basis on Thursday, according to exchange data.
Meanwhile, RBI has lowered GDP growth projection to 6.6 per cent from 6.9 per cent earlier for the current fiscal and raised CPI inflation projection to 5.1 per cent for FY27, higher from the earlier estimate of 4.6 per cent.
