Mumbai: The Indian rupee rose sharply on Wednesday after posting its biggest single-day fall on Tuesday, supported by the central bank’s move to make rates on deposits by non-residents more attractive.
Traders said commitment by the Reserve Bank of India (RBI) to continue intervening to support the rupee also helped the rupee to gain strength.
At 10:08 am, the partially convertible rupee was trading at Rs46.35/37 per dollar, 1.2% stronger than Rs46.89/90 at close on Tuesday when it had fallen to 46.99 during trade, its weakest since 24 July, 2006.
“The rupee opened stronger after the central bank move, and now the market is waiting. The fears are that if the rupee touches 46.50 and beyond, the RBI will come and sell heavily,” said Paresh Nayar, chief dealer at Development Credit Bank.
“The market has been very thin, but there is some demand from foreign banks. The market will look to sell around 46.50, due to the fear of RBI,” he added.
Dealers said the rupee may rise towards 46 in the near term, helped by the central bank.
India’s main share index opened up 0.75%, but quickly turned negative.
Foreign funds have so far sold a net $8.4 billion worth of Indian stocks, helping push the rupee down more than 15% so far in 2008.
Dealers said the dollar’s strength versus other currencies overseas was also hurting sentiment for the rupee.
The dollar jumped against the yen on Wednesday after the Federal Reserve rescued insurer American International Group, easing fears about a financial system crisis.