Mumbai: The rupee closed at the highest in nine years on expectations that growth in Asia’s fourth-biggest economy will fuel demand for local stocks as companies report better earnings.
The rupee is the best performer this year among the 15 active currencies in Asia as global funds in April bought $1.5 billion (Rs6,150 crore) of Indian shares more than they sold, the fourth-highest in the past 12 months.
The rupee may also gain as the central bank maintains high overnight lending rates to curb inflation, prompting some banks to sell dollars and raise cash.
“Supply of dollars continues to outpace demand because flows are strong and persistent,” said V. Rajagopal, chief currency trader at Kotak Mahindra Bank Ltd in Mumbai. “The broad trend is clearly in favour of the rupee as liquidity is also tight in the banking system.”
The rupee gained as much as 0.5% to 40.765 against the dollar before closing at 40.8025 as of 5pm in Mumbai, according to data compiled by Bloomberg. It reached 40.545 on 7 May, the highest intra-day since May 1998.
The benchmark Bombay Stock Exchange Sensitive Index, or Sensex, has climbed more than 13% after dropping to the lowest in almost five months on 5 March. The index gained 1.4% on 16 May.
The central bank last month said the $854 billion economy will expand “around” 8.5% in the year ending 31 March 2008, even after it raised the overnight lending rate five times in the past year.
India’s economy grew 9.2% last fiscal year, according to government estimates, the fastest pace in almost two decades.
The overnight money market rate rose as high as 9.38% on Wednesday, near the most in more than two weeks, Bloomberg data show. A higher rate may encourage some banks to sell dollars and lend rupees