Mumbai: The rupee inched up to a nine-year closing high on 29 May 2007, having spent most of the day caught between strong capital inflows and robust dollar demand from oil refiners to make month-end payments.
The rupee ended at 40.48/49 per dollar, up from the previous finish of 40.51/52 as it posted its strongest close since May 1998, but it stayed well clear of Monday’s nine-year intra-day high of 40.28.
Dealers said there were traces of Reserve Bank of India intervention when the rupee touched 40.46, but said the central bank’s dollar buying was relatively light compared to the estimated $600-$650 million it bought the previous day to drive the rupee from its peak.
“It seems the RBI is still keen the rupee remains around the 40.50 level, but their resolve may start wearing down, because with the flows so strong, the market will keep banging at the door,” said a dealer with a private bank.
The RBI bought $22 billion in the five months to end-March trying to stem the rupee’s rise, and dealers say it has played an active role in the currency market in recent weeks.
Commerce Minister Kamal Nath said he expected foreign direct investment equity flows of $30 billion in the fiscal year ending in March 2008, up from $15.7 billion in 2006/07, a comment many dealers took as a sign the RBI would gradually let the rupee rise.
“This kind of comment helps the market feel more comfortable with the idea that the RBI will allow continued rupee strength, given it is based on more durable flows, as opposed to just portfolio flows,” Shahab Jalinoos, currency strategist with ABN AMRO Bank in Singapore, said in a note.
The rupee is Asia’s best performing currency against the dollar this year, gaining more than 9% on strong capital inflows into the fast-growing economy.