The Indian Rupee, on Wednesday, surged to its highest level in nearly 8 years. The Rupee traded 43 to a dollar as banks sold the US unit to raise funds to meet statutory reserve requirements.
According to reports, ending at 43.065/075 on Tuesday, the rupee was at 42.925/935 per dollar at 10:15 am on Wednesday, off an early high of 42.84, it’s strongest since June 1, 1999, when it traded at 42.83.
The Rupee has gained about 9.5 % since hitting a 3-year low last July, and the central bank is thought to be uneasy with the rupee's pace of appreciation.
Still, the RBI's recent intervention has fuelled money supply growth and inflation, both running above the central bank's comfort band. Aiming to tame inflation and credit growth, the RBI has increased the Repo Rate and the Cash Reserve Ratio. The move had compelled banks to sell dollars to generate funds to meet the statutory requirement.
Overnight inter-bank loan rates traded at 9-10 %, above 6-7 % when cash supplies are adequate. The rates had hit 80 % on Friday, their highest in more than a decade.