The rupee was driven lower by suspected central bank intervention on Wednesday after investors bought the Indian unit anticipating strong capital inflows after the US Federal Reserve cut interest rates. The partially convertible rupee ended at 39.58/59 per dollar, slipping from Tuesday's close of 39.48/49, and knocked off an intraday high of 39.38.
"There were no significant inflows, but the market is convinced they will come, and took positions accordingly," said a dealer with a state-run bank. "But the central bank stood firm, and is likely to remain so," the dealer added.
A surprise 75 basis point inter-meeting rate cut by the Fed has widened the interest rate differential between India and the United States to 4.25 percent, which could attract more capital flows, dealers said. Capital inflows were a key driver of the rupee's 12 percent rise in 2007, when foreigners bought a record $17.4 billion of stocks. The rupee hit a near-decade high of 39.16 in November.