New Delhi: The rupee advanced in the week to a nine-year high on speculation that overseas investors were drawn to the nation’s stocks, as the economy grows at the second-fastest pace in the world after China.
The currency rounded off a 10th five-day advance in 11 weeks, as funds abroad may add to last month’s $1.5 billion (Rs6,150 crore) Indian share purchases. The rupee was also supported as the central bank drained the currency from the market to help curb lending and keep inflation under control, said foreign exchange trader L.V. Prasad at IndusInd Bank Ltd in Mumbai.
“I’d be short on dollars because of the persistent flows that we’re seeing,” Prasad said. “The inflows and tight liquidity suggest a stronger rupee,” he added. A short position seeks to benefit from a currency’s decline.
The rupee gained 1.2% this week to 40.7375 against the dollar on the evening of 18 May in Mumbai, the strongest close since 22 May 1998. It strengthened to as much as 40.545 on 7 May, the highest intra-day price since May 1998.
It also gained after China widened the band in which the yuan trades to 0.5% from 0.3%, and told lenders to set aside more cash to curb lending, spurring speculation that India’s central bank will follow suit in allowing further gains in the local currency.
The rupee, the best performer in Asia among the 15 most-actively traded currencies, surged 8.7% this year.
The Reserve Bank of India’s (RBI) policy of mopping up funds from the banking system has led to speculation that policy makers are more concerned about inflation than strength in the currency.
This week, RBI sold Rs6,000 crore of bonds to remove excess cash.
Anoop Agrawal contributed to this story.