The Indian rupee came within striking distance of a recent nine-year high on Wednesday, buoyed by capital inflows, but its path was blocked by suspected central bank intervention, traders said. The partially convertible rupee ended at 40.550/565 per dollar, a shade higher than Tuesday's close of 40.560/570, and just off Monday's peak of 40.50 - its highest since May 1998.
"The RBI was selling rupees around 40.53, but the question is for how long they can sustain this blocking," said a dealer with a private bank, referring to the Reserve Bank of India. "The flows are too strong, and there is a cost attached to intervention." The market is expecting $4 billion to $5 billion of foreign money to flow into Indian IPOs and equities by the end of June, which should add to the rupee's strength.
The RBI bought $2.3 billion in March, in a bid to stem the rupee's rise, and dealers say it has been active in the currency markets this week. Analysts say the RBI intervenes to smooth excess volatility and to maintain exporters' competitiveness.
Kotak Mahindra Bank forecasts the RBI is likely to step up dollar buying, as slowing inflation gives it more elbow room to intervene. India's wholesale price index rose 5.44 percent in the 12 months to May 5, lower from the previous week's 5.66 percent, and falling within the central bank's target for the first time in five months.