Mumbai: Rupee strengthened 1% to a two-week high on Monday helped by gains in shares after a weekend interest rate cut, which raised expectations of fresh foreign portfolio inflows.
At 10 a.m. (0430 GMT), the partially convertible rupee was at Rs48.91/92 per dollar, its strongest since 20 October and 1.1% firmer than Rs49.44/46 at close on Friday. However the rupee has still shed about 19% so far in 2008 and hit a record low of Rs50.29 last week.
“Asian stocks are stronger and our stock markets will also definitely stay positive, so the rupee is likely to remain higher today,” the chief dealer with a state-run bank said. “It will stay in a band of Rs48.80/49.10 today.”
Indian shares jumped nearly 6% in opening trade after the surprise rate cut by the central bank over the weekend, although a stock market surge on Friday and uncertainty about the global economy may act as a brake on sharp gains.
RBI on Saturday cut its main short-term lending rate for the second time in as many weeks to ease a growing cash squeeze, spur faltering economic growth and fend off damage from the global financial crisis.
It cut the repo or the main short-term lending rate by 50 basis points to 7.5% and also banks’ cash and bond reserve requirements by 100 basis points each.
Dealers said the cut in banks’ cash reserve requirement, or CRR, to 5.5% will give the central bank more room to intervene in the currency market and protect the rupee from falling sharply.
Asian stocks edged up for the fifth straight day on Monday on hopes policy efforts so far to dampen the impact of the financial crisis would ultimately take hold, though data still painted an ugly picture of the global economy.