Mumbai: The Indian rupee was caught in a narrow range on Thursday, and traders said they were hesitant to take large positions as they waited to see if the RBI would intervene to stem the currency’s rise.
At 10:18 a.m. (0445 GMT), the partially convertible rupee was trading at 39.960/970 per dollar, off an early high of 39.950 but still slightly stronger than Wednesday’s close of 39.980/985.
“The market is testing today to see if the rupee can strengthen, and whether the RBI will allow this to happen,” said a trader with a government-run bank, referring to the Reserve Bank of India.
“In the past two days we’ve seen the RBI intervening, and yesterday the rupee opened higher, but then the RBI stepped in,” he said. “So today, people are hesitant.”
“We are also seeing some oil companies buying dollars,” the trader said.
India imports more than two thirds of its oil, and oil firms usually buy dollars to meet import commitments. Crude oil was trading above $104.50 per barrel on Thursday.
India’s main share index opened 0.35% higher on Thursday but then dipped into the red.
Inflows of foreign capital into Indian assets are a key driver of the rupee and rose ahead of the end of the fiscal year on 31 March.
However, analysts expect those inflows to taper off, in keeping with the overall trend in the past three months.
“Coming up, I’m not seeing any major outflows, but also no huge inflows,” the trader said. “Basically, no major externals on FIIs,” he added, referring to foreign institutional investors.
Foreigners were net sellers of nearly $300 million of local stocks on Tuesday, the most recent data available. They have sold a net total of $3.3 billion in shares so far this year.
In 2007, they bought a net $17.4 billion in stocks, a factor in the rupee’s climb of more than 12% against the dollar.