Global risk aversion to impact rupee: Experts

Mumbai, Oct 17 (IANS) Global risk aversion coupled with waning of foreign funds inflows might impact the rupee value in the coming week, experts said on Saturday.

“The return of global risk aversion due to the upcoming US Federal Reserves’ FOMC (Federal Open Market Committee) might impact the funds inflows in the country, thereby triggering depreciation in the rupee value,” Hiren Sharma, senior vice president, currency advisory at Anand Rathi Financial Services, told IANS.

The US Fed is slated to conduct its Federal Open Market Committee (FOMC) meet on October 27-28.

The FOMC assumes significance as higher interest rates in the US are expected to lead away FPIs (Foreign Portfolio Investors) from emerging markets such as India.

“However, a stable equity markets, increased exposure of foreign funds to government backed securities and lack of triggers will act as supporting factors for the rupee,” Sharma said.

Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS: “That the rupee can be in the range of 64.50-66 to a US dollar. The Reserve Bank of India (RBI) seems to be comfortable with the rupee ranging between these levels.”

“The RBI will try and maintain these levels. The rupee will also have the benefit of increased foreign funds inflows in the country’s equity and debt markets due to the strong economic fundamentals here.”

On a weekly basis, the rupee fell by eight paise and closed at 64.82 to a US dollar during the week ended October 16. The rupee had closed at 64.74 to a greenback in the week ended October 9.

According to Banerjee, the rupee’s gains can be attributed to the increased inflows of foreign funds to government backed bonds.

“The RBI’s decision to allow rupee denominated exposure limits to the government backed bonds has attracted solid response from foreign investors. The decision is expected to usher in around $2.5 billion by this fiscal end,” Banerjee said.

Since October 12-14, the FPIs invested around Rs.13,423.33 crore in government backed securities.

The data with the National Securities Depository Limited (NSDL), showed that the FPIs bought Rs.12,144.71 crore or $2.30 billion in equity and debt markets from October 12-16.

On September 29 the Reserve Bank allowed greater access to foreign funds to invest in rupee-denominated government backed bonds.

The RBI had said that it intended to provide a more predictable regime for investment by foreign funds and decided to raise their exposure limits in phases in central government securities to 5 percent of the outstanding stock by March 2018.

The central bank also set a separate limit for investment by such funds in state development loans, which are to be increased in phases to reach 2 percent of the outstanding stock by March 2018.

The Indian equity markets too gave a healthy performance in the week under review.

The barometer 30-scrip sensitive index (S&P Sensex) of the Bombay Stock Exchange (BSE), rose 135.09 points or 0.49 percent at 27,214.60 points from its previous weekly close at 27,079.51 points.

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