Rupee logs best week in over two years on the back of dollar inflows, strengthens above 86/$

The Indian rupee ended almost two months high on March 20 at 86.3675 against the US dollar.

A slew of factors including steady oil prices, fall in dollar index and liquidity support by the central bank along with likely interventions in the forex market have resulted in the Indian Rupee rising over a percent this week, extending its gaining streak to eighth session, and ended its best weekly performance in two years.

The rupee ended at 85.9725 against the US dollar from 86.3675 in the previous session. It rose to a 10-week high of 85.9375 during the session and gained 1.2% in the week. This has been the best level for the rupee since January 9, when it traded near 85.8638 against the US dollar.

The Indian rupee has been on the appreciating spree for the last few sessions, on dollar liquidity provided by the Reserve Bank of India (RBI) through USD/INR Buy/Sell swap auction, and regular interventions by central bank, experts have said.

This week alone, rupee strengthened by 1.1%, which is the most since January 13, 2023, as per data from Bloomberg.

“The rupee has been appreciating since start of the month as central bank provided the dollar liquidity by way swap along with regular interventions,” Dilip Parmar, a senior research analyst at HDFC Securities said.

Aditi Gupta, Economist at Bank of Baroda added that the rupee also found support from steady foreign debt inflows, range-bound oil, lower domestic inflation and a shrinking trade deficit.

“RBI’s apt and timely liquidity and currency management also has helped in boosting investor confidence which can also explain the rupee’s relative outperformance,” Gupta said.

India’s trade deficit narrowed to $14.05 billion in February, resulting in a rare overall trade surplus of $4.5 billion. The deficit was nearly $23 billion in January. On a year-on-year basis, too, the trade gap in goods was narrower compared to $19.51 in February 2024. The Commerce Ministry said the deficit in February is the lowest since August 2021 due to a decline in imports and exports relatively holding up. While merchandise exports fell 10.9 percent on-year in February to $36.91 billion, goods imports decreased by a larger 16.35 percent to $50.96 billion, provisional data released by commerce ministry on March 17 shows.