India's central bank bought as much as $1 billion over Wednesday and Thursday to prevent the rupee from strengthening too much after the currency hit three-month highs as investors poured funds into emerging markets, two traders said. As recently as last month the Reserve Bank of India (RBI) had intervened frequently to defend the rupee after it hit its lowest since September 2013, but a rapid turnaround in fortunes has persuaded the central back to buy dollars to prevent excessive appreciation.
RBI Governor Raghuram Rajan has frequently criticised central banks that undertake policies that devalue currencies and said the Indian central bank only intervenes to prevent excessive volatility. Despite repeated bouts of dollar buying, the rupee struck a three month high of 66.1700 per dollar on Thursday and was on course to post a gain of 3.2 percent in March - its biggest monthly gain in 2 1/2 years. Traders estimated the RBI had sold around $1 billion during the past two days trying to halt the rupee's ascent. By 0851 GMT the rupee stood at 66.2150/2200 per dollar, having strengthened from 66.37/66.38 at the close of onshore trade on Wednesday. The rupee's appreciation reflects a broad move into high yield emerging markets by investors, as central banks for major economies - notably the Bank of Japan and European Central Bank - have adopted a more dovish stance.
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