The Indian rupee climbed to its highest in more than seven years on Wednesday, coming close to 43 against the dollar before suspected central bank intervention halted the rise, traders said.
The rupee ended at 43.04/06 per dollar, off an intra-day high of 43.01 - its strongest level since November 1999, according to Reuters data. It had closed at 43.29/30 on Monday. The currency market was shut on Tuesday for a holiday.
The Reserve Bank of India (RBI) has regularly sold rupees since November to rein in the Indian unit. However, an acute cash shortage in the banking system forced banks to sell dollars to raise rupee funds.
The rupee has gained more than 9 percent from a three-year low of 47.04 hit last July. "We see the next support at 42.80. It's unclear what the central bank would do now to check the rupee's gains," a private bank trader said.
Overnight rates ended at 7-9 percent, off an intraday high of 30 percent and compared with the previous close of 13-15 percent. Cash held by banks dwindled this month after companies made advance tax payment of around 300 billion rupees ($7 billion).
"The RBI's very focused about inflation and liquidity. It would correct the exchange rate, once liquidity is comfortable," Shubhada Rao, chief economist at Yes Bank, said. "But I don't see it coming in a huge way," she added. According to central bank data, the RBI had bought $7.8 billion between November and January.
Traders see foreign investment as a key factor in determining the rupee's movement in 2007. Foreign funds have bought a net $1.4 billion of local shares so far this year.
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