The rupee strengthened for the sixth consecutive trading session on Friday, closing 8 paise higher at 94.43 against the US dollar, as large foreign currency inflows and Reserve Bank of India intervention continued to support the local unit.
The currency has now gained about Re 1 against the dollar over the past week, recovering from 95.43 at the end of August.
At the interbank foreign exchange market, the rupee opened at 94.53 and touched an intra-day high of 94.43 before settling at the day’s strongest level. It had closed at 94.51 on Thursday.
The latest gains come even as elevated crude oil prices and renewed tensions between the US and Iran continue to pose risks for the currency.
RBI-backed inflows lend support
A sharp increase in foreign currency inflows under the RBI’s special swap facilities has strengthened the central bank’s ability to manage volatility in the rupee.
Banks mobilised $127.22 billion through Foreign Currency Non-Resident (Bank), or FCNR(B), deposits under the special facility launched in June. Overall inflows under the FCNR(B), overseas foreign currency borrowing and external commercial borrowing windows reached $136.37 billion by the end of August.
Under the FCNR(B) facility, banks raised foreign currency deposits from non-resident Indians and could swap the dollars with the RBI for rupees. The arrangement reduced the currency risk associated with bringing these funds into India and helped attract large dollar inflows.
The RBI had introduced the facility on June 8 for fresh FCNR(B) deposits with maturities of three to five years.
The central bank has also intervened directly in the foreign exchange market through dollar sales in recent sessions, helping counter depreciation pressure from high oil prices and global bond-market volatility.
Forex reserves hit record high
The rise in foreign currency inflows has also coincided with a sharp rebuilding of India’s foreign exchange reserves.
The country’s reserves rose $11.475 billion during the week ended August 28 to a fresh all-time high of $740.803 billion, according to RBI data released Friday. Foreign currency assets increased $9.337 billion to $600.67 billion, while gold reserves rose $2.191 billion to $116.41 billion.
The previous record was $729.328 billion in the preceding week. Before the recent surge, reserves had last peaked at $728.494 billion in the week ended February 27. A larger reserve buffer gives the RBI greater room to supply dollars during periods of sharp currency volatility.
