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Jun 21, 2013, 07.43 PM IST | Source: Moneycontrol.com

Rupee rises 0.50% to close at 59.27/USD on Essar fund flows

The Indian rupee on Friday rose 30 paisa or 0.50 percent to close at 59.27 against the US dollar, aided by corporate fund inflows. The local currency on Thursday had hit record low at 59.98/US$ as foreign institutional investors (FII) exited their investments in emerging markets like India to invest in US treasury bonds.

Saikat Das
moneycontrol.com

The Indian rupee on Friday rose 30 paisa or 0.50 percent to close at 59.27 against the US dollar, aided by corporate fund inflows. The local currency on Thursday had slumped to record low at 59.98/USD as foreign institutional investors (FII) exited their investments in emerging markets like India to invest in US treasury bonds.

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"A Essar group company (Essar Steel) has raised USD 1 billion money through overseas route," a chief currency dealer from a large public sector bank told moneycontrol.com on conditions of anonymity. 

"On Friday, they have converted partly to the tune of Rs 300-400 million into rupee terms. This helped the local unit to gain strength against the greenback. However, nothing has changed fundamentally in the currency market," he said.

In line with this strategy to de-risk its balance sheet, Essar Steel on Thursday had announced raising USD one billion via external commercial borrowings (ECBs) at a competitive LIBOR linked pricing.       

Rupee dropped 3 percent in the entire week starting from June 17. It was its seventh successive weekly loss. The Reserve Bank of India had to intervene in halting rupee's slide on Thursday.

Since the begining of May, the rupee has tanked more than 9 percent. It is one the worst-hit emerging market currencies against the US dollar.

Globally investors are pulling out from emerging markets like India even as US Federal Reserve on Wednesday hinted at curbing of liquidity easing if economy improves. Federal Reserve chairman Ben Bernanke said that by the end of this year, its quantitative easing (QE), a method to inject more money into the financial system, would start tapering.

Hence, the fountain of liquidity is likely to ebb. The quantum of QE so far continues to be at USD 85 billion per month.

"There was disappointment for the market on the timing that QE is out of the way by mid 2014 against the earlier guidance of QE support till 2015. FED has reasons to end QE support ahead of schedule to arrest combination of growth and QE impact on inflation," said Moses Harding, head of asset liability committee and economic market research, IndusInd Bank .

saikat.das@network18online.com

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