Rupee Surges: RBI's New Measures Boost Currency

The Indian rupee saw a significant rally on Friday, advancing 84 paise to close at 94.95 against the US dollar, marking its largest daily gain in over two months. This surge was primarily driven by new measures introduced by the Reserve Bank of India (RBI) and the central government designed to attract foreign capital.

These initiatives are projected to draw in foreign inflows estimated between $20 billion and $50 billion. Specific measures include a discounted forex swap facility for public sector companies and banks to enhance external commercial borrowings, and a scheme to cover hedging costs for banks accepting multi-year deposits from Non-Resident Indians (NRIs). Additionally, overseas funds will gain access to a broader range of bonds.

Analysts suggest these steps could significantly bolster the rupee, potentially reversing its recent depreciation. While the FCNR-B swap window and FAR expansion are expected to yield the largest and quickest inflows, estimated at $25-30 billion, the currency's strength is also contingent on global geopolitical factors, particularly the ongoing West Asia war and crude oil prices.

Despite the positive outlook from the RBI's actions, some experts caution that the rupee's appreciation might be capped. One treasury head does not anticipate the currency strengthening beyond 93 per dollar. The rupee had weakened by 4.18% since the US-Iran conflict began, trading at 90.98 when the war started on February 28 and reaching a record low of 96.96 in late May.