Rupee logs best single day gain since June on account of MSCI rebalancing
equity indexes. This was the strongest one-day gain for the local currency since June 3, LSEG data showed.
The rupee rose to 84.25 intraday, according to Reuters, but likely dollar absorption by the Reserve Bank of India put a cap on the appreciation, traders said.
The rebalancing of MSCI’s global equity indexes took place after market hours Monday — the changes were announced earlier this month. As a result, HDFC Bank and five other Indian stocks will see inflows of close to $2.5 billion, traders said.
The market expects this appreciation to be temporary, as the rupee’s real effective exchange rate (REER) shows that it was overvalued by 7.21% as of October 31, RBI data showed. REER is a measure of the rupee’s competitiveness against 40 currencies.
“Along with a high REER, imports have gone up, and the trade deficit has widened. The RBI may not be comfortable with this and it's likely that they won’t allow too much appreciation in the rupee. The currency will appreciate at most to 84.20/$1 to 84.25/$1 levels, and we will again see levels like 84.50/$1 in some weeks,” said Anil Bhansali, head of treasury at Finrex Treasury Advisors.
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