Mumbai: The rupee rose sharply on Thursday, tracking gains in local shares that were given a fillip from buoyant Asian equities, but record oil prices and a shortage of dollars in the system were expected to limit gains.
At 10:05 am , the partially convertible rupee was at 40.04/05 per dollar, rising smartly from a close of 40.21/23 on Wednesday, when the currency had hit a five-month low of 40.25.
“A couple of foreign banks sold a lot of dollars this morning, and built short dollar positions, perhaps anticipating some strong inflows,” said a dealer with a state-run bank.
India’s benchmark share index rose over 1% in early trade, bolstered by equity markets in Asia that rallied as solid earnings and expectations of further US interest rate cuts outweighed worries about inflation.
Oil was trading just under $100 a barrel on Thursday. Crude oil is now hovering near the all-time inflation-adjusted high of 101.70 hit in April 1980, the International Energy Agency said.
The dollar was little changed against the yen and the euro on Thursday, stung by expectations that the Federal Reserve will keep slashing rates to prevent the US economy from suffering a sharper downturn.
In its quarterly forecast, the Fed cut its economic growth forecast for 2008 due to the deepening housing slump and tight credit, saying the risks for further setbacks were worrisome.