Indian rupee sees continuous drop in forex reserves amid demonetisation

The Indian rupee continued its aggressive recovery and ended at a nearly one-month high of 67.42 largely driven by frantic dollar unwinding by speculative traders and corporates.

Scripting its best weekly gain since March 2016 - the home currency appreciated by a whopping 78 paise or 1.14 per cent.

A spectacular rally in domestic equities alongside renewed capital inflows predominantly kept sentiment highly buoyant even amid a widely expected interest rate hike from the Federal Reserve.

The forex market witnessed unexpected moves by the Reserve Bank of India (RBI) even as the Federal Reserve is largely expected to raise rates this upcoming meet.

Defying expectations, the Monetary Policy Committee kept short-term lending rate unchanged and also lowered GDP growth rate to 7.1 per cent in the midst of short-term disruption in economic activities due to demonetisation.

At the Interbank Foreign Exchange (forex) market, the local unit resumed a tad higher at 68.18 from last Friday’s closing value of 68.20.

It gained further ground as the strong momentum continued into mid-week and the strength was validated by the rupee hitting a high of 67.32 before concluding at 67.42, showing a steep rise of 78 paise, or 1.14 per cent.

The local unit touched a low of 68.27 briefly before rebounding.

Meanwhile, the US dollar remained highly bullish on widespread improvements in the US economy with consumer spending up and CPI on the rise.

The dollar index, which measures the greenback against a basket of major currencies end at 101.60 from 100.75 a week earlier.

However, Foreign investors have pulled out close to USD 6 billion from the Indian market in November amid concerns over the government’s demonetisation decision.