The rupee rose to its strongest level in four sessions on Friday, lifted by gains in Asian currencies, but dealers were circumspect about taking large bets given this week's brutal stock sell-off.
At 9:19 am, the partially convertible rupee was at 39.36, stronger than Wednesday's close of 39.45/46. Volumes were hit by a strike affecting state-run banks, the biggest players in the currency and bond markets.
As the rupee moved within sight of a 10-year high of 39.16 hit in November, traders knew the risk of intervention increased.
"Volumes are quite thin and this is central bank territory. There are not many fresh triggers before the policy meeting next Tuesday," said a local dealer at a foreign bank.
The Reserve Bank of India (RBI) bought $72.1 billion in intervention the first 11 months of 2007 and dealers said it has been active since then in trying to keep the rupee lower.
"Oil-led demand may creep in at current levels and the stock market opening is key," the trader said.
Foreigners sold $3.2 billion of shares in the six sessions to Wednesday, including $620 million on Wednesday when the market rose 5.2 per cent. The stock market fell 2.1 per cent on Thursday.
Seven out of 13 analysts polled by Reuters on Thursday forecast the RBI would cut its repo rate by a quarter per centage point to 7.5 per cent on Jan. 29. The others forecast no change.