Mumbai: The Indian rupee was stopped shy of a near-decade high on 6 November as the central bank bought dollars early, dealers said, but sentiment was boosted after gains in Asian shares raised hopes for fresh capital inflows.
At 9:45 a.m., the partially convertible rupee was at 39.287/297 per dollar, off an early peak of 39.26, but still higher than 39.31/32 at close on 5 November when it hit 39.22 -- its strongest since March 1998.
“The intervention does not really scare anyone because the market is expecting gradual appreciation of the rupee, and there is very little the central bank can do about it in the medium term,” said the chief dealer with a corporate.
The rupee got a fillip after Finance Minister Palaniappan Chidambaram said on 5 November that it was likely to appreciate further due to strong economic growth.
Dealers said that exporters had sold the dollar after the finance minister’s comments on 5 November, and that they would continue paring dollar holdings, anticipating further erosion in the U.S. currency’s value.
Most Asian shares bounced higher on 6 November as investors bought back beaten-down financial shares. Foreigners have poured in more than $17 billion so far this year into local shares -- a key driver for the rupee’s rally this year -- well above a full-year record of $10.7 billion in 2005.
But with the central bank playing an active role in tempering the rupee’s rise, dealers were cautious about taking large positions in the local unit.
The central bank bought about $40 billion in the first eight months of 2007, and Swiss bank UBS estimates it bought a record $16 billion in September, in a bid to slow the rupee’s rise.