Indian Rupee rose by 6.6% on 18 January 2012 from its Life Low of 54.30 touched on 15 December 2011

The Indian rupee rose to a two-month high and shares climbed on 18 January 2012 as a result of revival of US dollar flows and also because of the undervalued shares which lost more than 35% in US dollar terms in 2011. The currency rose 1.2% to close at 50.70 to the dollar. It is up 6% in 2012 and 6.6% from its life low of 54.30 touched on 15 December 2011. There have been inflows from FIIs, both debt & equity.

Also, emerging markets are currently poised to cut interest rates after China’s 8.9% economic growth in the fourth quarter, the slowest in 10 quarters.

The rupee could gain further since demand for dollars may subside following the doubling of duty on precious metals imports.
The Indian rupee, which was the worst performer in Asia in 2011, is presently turning out to be the best in 2012 due to measures by the Reserve Bank of India. The Indian rupee is found to be doing well despite imports still outstripping exports which many say could return to haunt the currency.

The benchmark Sensex rose 1.7%, the least among major markets with Hong Kong, Shanghai, Korea and Singapore gaining more. It has risen 6% since January 2, making it the best-performing index in Asia.

The outlook on the Indian rupee mproved as foreign funds raised holdings of debt securities by $2.6 billion in January to a record $28.7 billion and equity purchases have increased $559 million. While 10-year Indian sovereign debt yields more than 8.2%, comparable US treasuries fetch less than 2%.

However, raising import duty on gold to 2% of value from Rs 300 per 10 grams, and that of silver to 6% of value from Rs 1500 per kg could slow imports thus reducing dollar demand and strengthening the rupee. Gold is the second-biggest commodity import after crude oil with imports of 878 tonnes in 2011 for around $35 billion.