Mumbai: The Indian rupee held steady on Tuesday as dollar demand from oil firms was offset by rupee demand from banks on expectation the central bank may let it rise to curb imported inflation.
At 10:07 a.m (0437 GMT), the partially convertible rupee (INR=IN) was at 39.9650/9775 per dollar, compared with 39.95/96 per dollar on Friday. The market was closed on Monday for a local holiday.
“We are seeing a bit of a two-way interest in the dollar/rupee,” said the head of trading at a state-run bank.
“The stock market trend will provide the trigger for its direction.”
The stock market fell 1% in early trade but quickly pulled back to stand 0.5% down.The Reserve Bank of India (RBI) holds a rate review on 29April and though it may not raise interest rates against the backdrop of slowing growth, analysts do not rule out an increase in banks’ reserve requirements.
Data on Friday showed the annual wholesale price inflation rate (INWPI=ECI) was 7.41% on 29March, up sharply from 7% a week earlier and at its highest since November 2004.
The central bank wanted to contain it near 5% in the 2007/08 fiscal year that ended in March.Another possibility might be to allow the rupee to rise but dealers say the central bank would only permit a gradual appreciation rather than a sharp rise.
Data on Friday showed it bought $3.88 billion in intervention in February, taking the total so far in 2008 to $17.509 billion.
Traders were also looking for cues from Asian stock and currency markets.Oil and gold prices gained on Tuesday as the dollar struggled to attract buyers due to signs of a weak earnings season for U.S. banks, which could expose yet more subprime losses and punish stocks worldwide.