Rupee on cloud nine

Hits 9-yr high of 40.28, closes at 40.51.

The rupee today nudged closer to the 40 mark against the dollar on foreign fund inflows, but ended lower at 40.51/52 on perceived intervention by the Reserve Bank of India (RBI).

The currency touched a fresh nine-year high of 40.28 intra-day as foreign banks, acting as custodians of foreign institutional investors, were selling large amount of dollars.

Dealers said the rupee fell sharply to 40.51 on dollar buying by nationalised banks, which the market perceives to be an indirect intervention by the RBI to curb the appreciation.

The rupee tested 40.50 a dollar level the whole of last week, which the dealers now see as a level with which the central bank would be comfortable with.

According to dealers, the spot rupee opened at 40.55/56 but shot up to a high of 40.28 before falling sharply again to rule in the range of 40.50-55.

The currency reached 40.2850 for the first time since May 1998 after ruling over 40.50 since the last few weeks.

The trigger for the sharp appreciation started with the revision in the yuan's trading band by China two weeks back.

"There were robust FII inflows since the markets in London and US are closed, which made foreign banks to deploy dollars in the Indian equity market," explained a foreign banker.

Meanwhile, improved rupee liquidity conditions in the domestic market led to a fall in the premium paid for booking forward dollars. The annualised premium for six-month and one-year forward dollars closed at 3.13 per cent and 3.07 per cent against its previous close of 4.23 per cent and 3.70 per cent.

The bond market witnessed brisk trading by players since the RBI did not announce any liquidity tightening measures.

The yield on the 10-year benchmark security fell down to close at 8.07 per cent against 8.13 per cent last Friday.

The RBI received Rs 17,500 crore of reverse repo bids from banks, which was in contrast to the RBI being a supplier of liquidity to banks under the repo (repurchase) window in the last few weeks.