A strengthening rupee might not hit exports, which grew 17 per cent in
February, in the near term, traders and economists believe.
The rupee on Thursday was at a 17-month high against the
dollar, despite the US Federal Reserve announcement on hiking interest rates.
Maintaining a strong position over recent months, the rupee has risen by 3.4 per cent till date this
calendar year.
On the other hand,
rising for a sixth straight month, exports posted the highest rate of rise in a little more
than five years. Outbound trade touched $24.5 billion in February; it was $20.8
bn in the same month last year, according to data issued by the commerce and
industry ministry on Wednesday.
"The rise in exports happened in spite of no support from the currency side," said Ajay Sahai, director-general of
the Federation of Indian Export Organisations. He believed exports would continue to improve, although a major rise
in the rupee could upset this.
The rupee is the third best performing currency in Asia against the dollar, behind South Korea’s
won and the Taiwan Dollar, that have risen 5.4 per cent and nearly five per
cent, respectively.
The strong performance
of the Modi government in successive key elections is counted as an important
reason, among others, for sustaining the faith of foreign investors in the rupee.
“From a trade
perspective, that is a difficult position for India, as it is only the emerging
market economy which has seen its currency appreciate,” said Madan Sabnavis, chief
economist at CARE Ratings.
However, on Wednesday,
the US Federal Reserve increased its policy rate by 25 basis points, to
a range of 0.75 per cent to one per cent. Economists suggest the rally in the rupee could slow down over the coming months.
The sudden rise in exports in February has been attributed to a low base
effect, as well as increasing crude oil prices, which boosted the export of
engineering goods and petroleum products, two of India’s major foreign exchange
earners.
"Global commerce is
more dependent on demand than the valuation of currencies," said Devendra
Pant, chief economist, India Ratings. Overall, global demand conditions are
slowly improving, he added.
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