'I don't see 88 per dollar now.'
The rupee logged its highest monthly gain this March in over six years on the back of strong foreign inflows and unwinding of short positions against the local currency, dealers said on Friday.
In November 2018, the rupee had appreciated by 6.3 per cent.
The rupee settled at 85.47 per dollar on Friday -- the last trading session of the financial year, witnessing a 2.39 per cent appreciation against the US dollar in March. On Thursday, it had settled at 85.79 per dollar.
The domestic currency appreciated by 0.4 per cent on Friday due to dollar sales by foreign and private banks, said dealers.
"We saw inflows in both equities and debt during the month, and those who bet against the rupee unwound their positions. There were also reports about directions from the RBI regarding the same," said the treasury head of a private bank.
The rupee depreciated by 2.12 per cent in the current financial year (FY25), as compared to 1.47 per cent weakening in FY24.
"A key driver of INR strength appears to be the RBI, which is reportedly advising banks to avoid large arbitrage bets between onshore and offshore markets," said Abhishek Goenka, founder & CEO, IFA Global.
"Notably, this rupee rally has occurred despite stability in the Chinese yuan. In fact, the rupee has appreciated over 2% against the yuan in just a few sessions, moving from 12.05 to 11.81," Goenka explained.
"At the same time, it has strengthened by 1.5% to 2.5% against most other Asian currencies," Goenka said.
While the Indian unit was under pressure during the start of 2025, it started recovering from February following aggressive intervention by the central bank, and in March, it recovered all its losses made in 2025.
In the January-March quarter, the local currency gained 0.12 per cent -- its best performance since April-June 2023 when it appreciated 0.17 per cent.
However, the domestic unit may come under renewed pressure in April as foreign institutional investors (FIIs) may begin pulling out from the domestic markets, taking the rupee beyond 86 per dollar mark.
"The rupee was struggling at the start of the year because of geopolitical issues. The RBI stepped in in all the three segments of the market. Swaps helped and then March being the end of the year and quarter, we saw inflows, which aided rupee," said a dealer at a State-owned bank.
"Dollar index also steadied around this time. But the rupee will come under pressure starting April, because FIIs might eventually start pulling out," the dealer added.
Traders now eye US tariff announcements next week. The US is expected to impose reciprocal tariffs on April 2.
"Once the US tariffs come into effect, the rupee will again trade toward 86.50 per dollar; I don't see 88 per dollar now," said the treasury head of a private bank.
The domestic equities market witnessed Rs 4,977 crore (Rs 49.77 billion) net inflow in March, whereas foreign investors net infused Rs 7,097 crore (Rs 70.97 billion) in the debt segment.
Feature Presentation: Ashish Narsale/Rediff.com
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