Rupee is trading above its one-year high of 65.4 against the US dollar. The recent appreciation in the rupee, analysts say, has mostly been fuelled by the gush of liquidity into the equity markets by foreign institutional investors (FIIs) in the hope of accelerated pace of reforms post Narendra Modi–led Bharatiya Janata Party’s (BJP’s) landslide victory in assembly polls in the key state of Uttar Pradesh.
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Year-till-date (March 16), foreign institutional investors have pumped in around Rs 23,007 crore in the Indian equity markets.“The turning point for the rupee has been the recent assembly elections. The rupee was expected to depreciate against the USD. If you look at the fundamentals, oil prices have slipped to $50/barrel levels. That apart, the FII flows have also started to increase. Thirdly, there is some speculative element also at play. Given this, the rupee is expected to strengthen. This is one reason that the RBI has approached the banks to check the rupee’s appreciation. Though the recent trade data is a statistical mirage, it can add to the rupee’s strength,” says Madan Sabnavis, chief economist, CARE Ratings.