Mumbai: The rupee was wedged in a tight band near 40 per dollar on Wednesday, waiting for cues from the stock market and worried that a rise may prompt central bank intervention.
At 11.16 a.m., the partially convertible rupee was at 39.99/40 per dollar, a shade stronger than Monday’s close of 40.010/020.
“The rupee is stuck as there aren’t many capital outflows and the central bank is keeping it on a tight leash,” a trader at a private bank said.
“People are not taking very large positions,” he said.
Capital flows into and out stocks are a key driver of the rupee. Foreigners bought about $430 million of shares on Friday and Monday, but have been net sellers of more than 3 billion in equities so far this year, a factor in the rupee’s 1.5% fall against the dollar in 2008.
Last year, when the rupee rose more than 12%, foreigners bought a record $17.4 billion.
India’s benchmark share index opened 0.5% lower on Wednesday, but later recouped those losses.
A rise in annual inflation to 7.0%, its highest in more than three years, had prompted speculation that the central bank might allow the rupee to rise to combat price pressures.
But, contrary to expectations, the central bank has bought dollars through state-run banks to stem the rupee’s rise, making the market reluctant to push it far beyond 40 per dollar.