Ending its four-day upward journey, rupee on Thursday ended 17 paise down at 60.31 against the US dollar as month-end dollar demand from importers and the Reserve Bank of India's heavy purchase of the American currency to shore up its foreign exchange reserve put the brakes on the rally.
Experts said improving economic fundamentals, foreign fund inflow and prospects of a more stable and business-friendly government at the Centre are driving the rupee's upward movement. The Indian currency touched a eight-month high of 60.04 on Wednesday. In the past two-and-a-half months, it has risen 5.5% against the dollar.
"I think the rupee should stabilise around 59.80 – 60.5 levels for the near-term," said Kishore Narne, currency head at broking firm Motilal Oswal. "I believe the rupee will hover around 59.5–62.5 till elections," he added.
Current account deficit (CAD) — the difference between the inflow and outflow of foreign currency — fell to its lowest levels at $4.2 billion in the third quarter of 2013-14. The consumer price index and the wholesale price index also fell to 8% and 4.7%, respectively, last month. Both the benchmark Sensex and the broader NSE Nifty have also hit all-time highs on foreign fund inflow into the markets.
All these has led to the strengthening of the rupee against the dollar, experts said.
"However, we need not be very optimistic about the cooling of inflation. If the predictions about a draught-like situation turn real, inflation will head back to higher levels," said Nerne. "The key driver will be election results," he said.
"The rupee may hold slightly above 59. But after elections it may go down to 61-63 levels," said Ashwin Shetty, vice-president, UAE Exchange. "Financial data of companies may not be strong enough to support another upward spiral, at least for the next six months," he added.