Mumbai: The rupee rose on Thursday, 6 December, on hopes an expected US rate cut would increase flows into India, but traders said gains would be muted by central bank intervention.
At 9:10am, the partially convertible rupee was at 39.45/46 per dollar, slightly stronger from the previous close of 39.485/495.
“We see some selling from foreign banks on behalf of foreign funds, which could be positioning for a cut in US interest rates,” a trader with a state-run bank said.
Foreigners have bought a net $16.2 billion of local stocks so far in 2007. The inflow has been a key driver of the rupee this year, helping it gain about 12 percent, to be among Asia’s best-performing currencies.
The US Federal Reserve, which meets on 11 December, is widely expected to lower the key federal funds rate by 25 basis points to 4.25%.
It has already cut rates twice since mid-September, widening the interest rate differential with the Indian central bank’s short-term lending rate of 7.75%.
Another Fed cut next week could push overseas investors to higher yielding Indian market, dealers said.
Traders said sentiment was wary of central bank intervention. “There could be some resistance in store for the rupee towards 39.40 as this is perceived as a level where the RBI would buy dollars,” the trader said.
The Reserve Bank of India (RBI) bought about $52 billion in the first nine months of 2007 and is widely believed to have played an active role in the currency market in October and November, too.