RBI Involvement Blocks Rupee’s Advancement

Mumbai: According to the market traders, the rupee edged higher on yesterday but its rise was blocked up by RBI that intervened heavily to keep it off 9-1/2-year peaks.

The partially convertible rupee ended at 39.305/310 per dollar, strengthening from Friday's finish of 39.36/37. Last week, it had hit 39.27 -- its strongest level since March 1998.

A senior dealer with a foreign bank said, “The central bank absorbed everything that came its way today without them we would be at 39.20.”

The dealer computes that the RBI has purchased around $80 million to check the rupee’s increase.

Traders told that foreign capitalists continued to pour funds into the local market securities market, which climbed 3.5 percent to a record high for the 17th time in just 18 sessions.

The rupee has made over 12.5 per cent in the existing year against the dollar.

The rupee’s gains have been driven by investment flows as foreigners are drawn into the fast-growing economy.

But with the central bank widely suspected of playing an active role to stem the rupee’s rise, dealers remained careful about building large positions in the local unit.

According to the recent statistics, the RBI has bought $39.9 billion during the first eight months of the recent year, and traders said that its involvement to hold the rupee has picked up considerably in the last few weeks.

Still, the market ignored worries of new government measures to cap the Indian currency, actuated by comments from India’s finance minister who stated on Friday that the rupee’s increase had taken it out of the government’s comfort zone.

A private bank trader said, “If the finance minister was trying to intervene verbally, and it looks like he was, the effect only lasted a very short time.”