The Indian rupee was stuck in a narrow band on Tuesday, with dealers wary about pushing it past 40.50 per dollar for fear of triggering intervention by the central bank, which has been suspected of defending that level.
The partially convertible rupee ended at 40.5200/5300 per dollar, up a touch from Monday's 40.5325/5425. It hit 40.28 last week - its strongest level since May 1998.
"The central bank is holding firm at 40.50 at the moment, but given the flows that are expected this month, it's only a matter of time before the rupee starts rising again," said a trader at a foreign bank, who expects the rupee to trade at 40.25 by the end of June.
The market is expecting about $5-7 billion of capital inflows this month, much of it slated for local equities and IPOs. Property developer DLF Ltd is looking to raise up to $2.4 billion in India's biggest-ever initial public offering, which opens on June 11, and leading private bank ICICI Bank plans share sales in India and abroad to raise $5 billion.
Traders said the rupee's strength has seen the central bank step up its dollar purchases in recent days. They estimated it bought $800 million last week. Official data showed it purchased $22 billion in the five months to end-March.
The rupee has gained about 9 percent this year to be Asia's strongest currency against the dollar, but its rise has led to concerns that exports and exporters' earnings could be hit.
Exports in April were $10.6 billion, lower than $12.6 billion a month earlier. Trade minister Kamal Nath reiterated on Monday the rising rupee was hurting local exporters, and said its impact would start showing up from July.
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