The rupee inched up on Tuesday on expectations of a large foreign direct investment, but traders were wary of the central bank which could intervene and cap gains to keep exports competitive.
The rupee mostly shrugged off the dollar's rise against the euro and the yen after Federal Reserve Chairman Ben Bernanke said that short-term interest rates might need to be higher than usual if long-dated rates reflect small premiums.
At 9:45 am (0415 GMT), the partially convertible rupee was quoted at 44.35/36 against the dollar, 0.11 percent higher than the previous close of 44.4025/4125.
"There is talk of a large foreign capital inflow lined up," said a trader at a large foreign bank. "We expect some central bank presence, but if the investment is huge, they could let the rupee rise a bit."
The central intervenes through state-run banks in the currency market to curb sharp swings and to maintain the competitiveness of Indian exports. The rupee, analysts say, is overvalued by 8 percent on a trade-weighted basis.
India got $4.34 billion in FDI between last April and this January and the government expects the figure to top $10 billion for the 12 months to March 31, 2006.
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