Mumbai: The rupee jumped to a nine-and-a-half-year high against the dollar on Wednesday, 10 October, on expectations of further strong foreign investment in the surging stock market, but dealers said gains were then blocked by the central bank.
At 9:45am (0410 GMT), the partially convertible rupee was at 39.335/345 per dollar, having risen to 39.31 in early trade, its highest since March 1998. On Tuesday, it had closed at 39.44/45.
“The cat-and-mouse game with the central bank continues, but the trajectory is clear: the rupee is moving from strength to strength,” said a dealer with a foreign bank, who expect the local unit to trade in a 39.20-39.40 range on Wednesday.
Asian stocks rose after a rally on Wall Street which was spurred by talk that the Federal Reserve might cut borrowing costs to stimulate economic growth in the United States.
India’s benchmark share index, the Sensex, ended 4.5% higher on Tuesday, its biggest percentage rise in 16 months, at a record close.
On Wednesday, the market opened at a record high — its 14th in the past 15 sessions.
Foreigners have bought about $2.3 billion of equities this month, taking their net purchases for 2007 to $15.3 billion, which has helped the rupee rise 12.5% to be Asia’s best performing currency against the dollar this year.
Yet with the central bank widely seen steadily buying dollar inflows in a bid to temper the rupee’s rise, the market does not expect the local currency to rise sharply over the near term.
Global ratings agency Standard and Poor’s said on Tuesday they expected the rupee’s rise to be capped by the central bank.
“...we expect the Reserve Bank of India to resist appreciation beyond current levels and the rupee will end the year at around 40.50 per dollar,” Subir Gokarn, S&P’s chief economist for Asia Pacific, said in a statement.