Re at 2-month high, crosses 46 to a dollar

The Indian rupee gained 27 paise today in the face of heavy dollar inflows and the central bank opting to stay out of the markets. The rupee ended the day at a two-month high of 45.90/91. On July 13 the rupee had closed at 45.87 against the dollar.

The rupee was expected to appreciate in the days to come and touch 45.50 in a month's time or less, dealers said.

"The Reserve Bank of India (RBI) will not come and buy dollars in the days to come. It will let the rupee appreciate," said a foreign exchange analyst.

Staying away from the dollar-rupee market is being interpreted as yet another move to douse inflationary pressures. When the RBI buys dollars in the market it pays for it in rupees, thereby pushing that much more rupees into the system. This adds to domestic liquidity and therefore inflation.

If the central bank were to buy dollars in the foreign exchange market, it would reverse the impact of the cash reserve ratio hike. Besides, a stronger rupee also brings down the cost of imported oil and to that extent impacts inflation.

"There was good dollar inflow from foreign institutional investors and exporters. The RBI also seems to be on a monetary mission by abstaining from the market," said the treasury head of a PSU bank. The RBI has been attempting to curb domestic inflation""currently at a 4-year high""through monetary measures.

The rupee today opened at 46.15/15 and closed at 45.90/91, on the back of a seven paise gain on Monday.

The forwards premia crashed by over 0.40 percentage points with heavy selling on behalf of exporters and banks. Activity is picking up in the non-deliverable forwards (NDF) market, which dealers said is also a reason for the softening premiums.

The six month forward premium (annualised) closed at 1.28 per cent (1.72 per cent) and the 12-month forwards ended the day at 1.15 per cent (1.55 per cent).