Breaking the Rs.40 to a dollar barrier for the first time since 1998, the Indian currency rose by 0.7% to touch 39.88 per dollar, spurred by the US Federal Reserve’s cut in the key interest rate. The boost follows speculation that foreign investors would now turn to the booming Indian market for higher returns on investment.
2007 has seen a 10% increase in the rupee, as a result of foreign funds
pouring in. Experts expect the rupee to maintain its current levels in
the first quarter, much to the discomfort of exporters, who expected a
trading rate of Rs.41 in the 3rd quarter of 2007-08.
The rupee has gained despite the Reserve Bank’s measures to stem the flow of foreign funds. External commercial borrowings by the company have been curtailed by the RBI and the cash reserve ratio had also been raised in July.
Nevertheless, foreign funds have found their way through other sources,
such as foreign direct investment and investment in Indian stocks and bonds.
Foreign institutional investors have picked up USD 10.1 billion worth of
stocks this year.
In the case of FDI
in India, a never before USD 16 billion
found its way into the Indian economy in the year ending March 2007.
The Commerce Ministry has expressed its concern over the rupee’s growing strength, forcing a revisit of the export strategy, which is presently targeted at USD 160 billion. Exports have already begun to decline, as per official data released earlier this month.
