Mumbai: Rupee strengthened on Wednesday as dealers sold the dollar to generate funds to tide over a cash squeeze in the banking system, though the market was wary of the central bank acting to limit its gains.
At 9:50 am, the partially convertible rupee was at 39.77/78 per dollar, up from a close of 39.79/80 on Tuesday, when it had fallen to a low of 39.90, its weakest since 22 October.
Earlier this month, the rupee rose to 39.16, its highest in almost 10 years.
“The main factor at the moment is the cash shortage, though the central bank is likely to come in if the rupee starts rising too much,” said the chief dealer with a corporate.
Overnight cash rates were at 7.80-7.85%, well above levels around 6% that they trade when cash conditions are comfortable.
The central bank added Rs121.35 billion ($3 billion) to the system via its repo window on Tuesday. Fixed income traders said this was an indication that fund availability was low in the system.
Dealers said that flows into the stock market were expected to be subdued on weak Asian cues.
Foreigners have sold about $1.1 billion worth of Indian shares so far this month, after buying $4.3 billion in October. Foreign buying of shares has been a key driver of the rupee’s gains of more than 11% rise this year.
Oil slid to below $94 a barrel, pinching some of Asia’s top resource stocks, while persistent fears that problems in the credit market would dent global growth chipped away at Asian share prices.