Indian rupee edges past 40.50, mkt wary of RBI
The Indian rupee headed towards last week's nine-year high on Monday, spurred by capital inflows and positive cues from most Asian currencies.business Updated: Jun 04, 2007 11:22 IST
The Indian rupee headed towards last week's nine-year high on Monday, spurred by capital inflows and positive cues from most Asian currencies, but dealers trod carefully on fears of provoking central bank intervention.
A trader with a private bank said two oil companies bought dollars in early trading, which kept a lid on the local unit, and the market was also watching for signs of dollar buying by the Reserve Bank of India (RBI), which is widely suspected of having intervened to block the rupee over the past two weeks.
"We've broken the 40.50 mark today -- whether the RBI allows it to be broken decisively is the question on everyone's mind," said a dealer with a private bank.
At 9:45 a.m. (0415 GMT) , the partially convertible rupee <INR=IN> was at 40.477/487 per dollar, up from Friday's finish of 40.5450/5500. It hit 40.28 early last week -- its strongest level since May 1998 -- but was quickly pushed back to 40.50 by suspected intervention.
The central bank bought $22 billion in the five months to end-March to check the rupee's gains, and traders suspect it purchased about $800 million in intervention last week.
The RBI will sell 50 billion rupees of Market Stabilisation Scheme (MSS) bonds this week. MSS bonds are used to soak up cash from the banking system, including funds injected by its intervention.
With inflation trending downwards, analysts say the RBI has more elbow room to intervene in the currency market. The wholesale price index, the most commonly watched price barometer, rose 5.06 percent in the 12 months to May 19, the smallest annual rise in nearly 10 months, data showed on Friday.
The rupee is Asia's best performing currency against the dollar this year. It has gained about 9 percent, driven largely by strong capital inflows into the fast-growing economy.