Re touches 1-month high on BSP support to govt on FDI

The rupee has touched a one-month high to closed at 54.134, on hopes of strong fund flows as the BSP lends support to the government on the FDI issue in the Rajya Sabha explains CNBC-TV18’s banking editor Latha Venkatesh.

The single factor that guided the rupee was the question of the enactment of the foreign direct investment (FDI) in multi-brand retail. There is a direct expectation of an inflow of dollars, even if it is not immediate. The rupee also rose on opinion that the BSP support to the government signals reform and therefore the foreign institutional investor (FII) flows which have been so good in the past few months will continue.
The rupee market needs those inflows much more because the trade deficit in October was as high as USD 21 billion. So every month if you need USD 21 billion just to bridge the difference between what importers are buying and exporters are selling, then obviously you need half a billion dollars a day, in fact almost a billion dollars every trading day to bridge the deficit.
However, experts are unsure of how much upside there will be because globally the dollar is a tad strong. The cutting of growth estimates by Draghi for the euro zone has made the euro a tad weaker versus the dollar. So the dollar is up. The morning Korean bond has opened a little weak because of fears of global growth. So there could be a bit of a cap to the rupee’s rally, but the fact that it will start with a spring is sure.