The rupee rose to a 16-month high on Monday, closing at 45.33 against the US dollar, on the back of strong foreign institutional investment (FII) inflow over past months and the weakening of the dollar against major currencies.
A stronger rupee will make imports cheaper, but the value of exporters’ earnings will dip in rupee terms.
The rupee has appreciated by 10 per cent in the last nine months and analysts projected it could strengthen further.
“The rise is driven by fund flows and weak US data on unemployment,” said Naresh Thakkar, MD, ICRA. “It may continue to strengthen given that the global recovery isn’t expected to be fast and India will have an advantage.”
The rupee is expected to gain as emerging economies such as India are likely to lead the world economy’s recovery, making them hotspots for FIIs.