After touching a low of Rs 54.23 against the US dollar on December 15, 2011, the rupee has strengthened to Rs 49.07/ dollar (as on February 28). While resurgence in portfolio capital flows (cumulative flows from December 2011 to February 6, 2012 are $11 billion) is one of the reasons, the RBI intervention in the forward exchange market too has helped. The RBI sold dollars in the spot market and bought the same in the forward market, allowing the foreign exchange reserves to remain in tact. This lead to sucking out rupees from the system and increasing dollar supply and, thereby, allowing the rupee to appreciate.
Source: The Hindu Business Line
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