MUMBAI: Rupee edged closer to a fresh nine-year high on Friday, boosted by strong capital inflows, but wariness the central bank may intervene checked the rupee's rise.
At 9:37 a.m. (0407 GMT), the partially convertible rupee was at 39.88/89 per dollar, barely changed from Thursday's close of 39.89/90 and in sight of 39.85 -- its highest since May 1998.
"These are good levels to take some profits as the rupee has rallied quite a lot this week," said a trader. The rupee has risen 1.7 per cent so far this week as a hefty US rate cut rekindled appetite for high-yielding assets.
Rupee is Asia's best performing currency, rising 11 percent since end-2006. A half percentage point cut in US interest rates has widened India's rate premium to 300 basis points – it’s highest in three years and another attraction for foreign investors. Foreigners bought $608.6 million worth of Indian shares on Wednesday, a day after the US rate cut taking their net purchases to $10 billion this year, up from nearly $8 billion in 2006.
Still, gains were muted on heavy dollar purchases by state-run banks but dealers said it was difficult to say whether they were buying on behalf of the central bank.
They estimated the central bank spent $400-$700 million in the last two sessions to slow the rupee's rise. The central band had bought more than $38 billion in the first seven months of this year to cap the rupee. UBS said in a morning note the central bank may allow the rupee to rise in the near term to as much as 38 as intervention may add to inflation-fuelling cash.
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