The Indian rupee appreciated strongly on Monday to post a near-seven-month closing peak, helped by robust foreign capital and trade inflows and the absence of sustained central bank intervention, dealers said. The rupee closed at 44.8350/8450 per dollar, 0.36 percent stronger than its previous close of 44.9850/45.0050.
The Indian currency last closed stronger at 44.6500/6700 on May 7, amid a general election when signs of a surprise verdict hit foreign investment and dragged the currency down after it had scaled a 51-month closing peak of 43.5450/5500 on April 7.
"It appears the central bank was keen to avoid a cash dollar shortage arising out of their interventions, which had been pushing near forwards into discount," a dealer at a state-run bank said. "So they allowed spot to appreciate today."
The Reserve Bank of India (RBI) had resolutely defended the 45-per-dollar mark for most of the past three weeks, ensuring that state-run banks stepped in to buy dollars on their behalf every time the rupee had appreciated past the key psychological level. The central bank's aggressive greenback purchases had in turn led to a shortage of cash dollars, which had along with a bullish outlook for the rupee triggered a flurry of buy-sell swaps on the near-term dollar forwards and pushed them into discounts.
Traders said the RBI was now likely to allow the spot rupee to post some more gains on Tuesday to let forwards to correct a little more.
"We expect to see the rupee in a 44.77 to 44.87 range tomorrow as the central bank may largely stay on the sidelines till forward premiums go up a little more," a trader at a private bank said.