Rupee ends at 2002 high

The rupee ended at a 2002 closing high against the dollar on Wednesday, boosted by robust remittances by exporters and banks going short on the greenback on hopes that more gains were in store for the local currency.

They added that the rupee was also encouraged by indications that the central bank was not making  wholehearted attempts to intervene and temper gains.

The local currency ended at 48.1475/1575 per dollar, up from the previous close of 48.1950/2050, itself a two-week closing high. The last time the rupee finished around this level was on December 26 last year.

It has so far gained 1.9 per cent from its mid-May life low of 49.08, but is still undervalued by about 2  per cent on a trade-weighted basis due to the latest bout of weakness afflicting the dollar overseas.

The unit was undervalued by about one per cent last week, analysts said.

"There were attempts by the central bank to support the dollar at every level," a dealer at a foreign bank  said. "But the inflows were quite robust."

Traders had expected state-run banks, which often act on behalf of the Reserve Bank of India, to  prevent the rupee from rising beyond 48.18 on Wednesday.

The RBI has been absorbing a bulk of the dollar supplies in recent months to maintain the export competitiveness of Indian goods and beef up foreign exchange reserves.

Despite the firm local unit, rupee premiums on the forward dollar ended firmer on sustained paying (sell-buy swaps) by banks, possibly acting for the central bank.

Traders said the intervention showed that the RBI was keen to correct a distortion in short-term rates by sucking out rupee funds.

As a result of their persistent paying, the six-month dollar-rupee implied rate inched up to around the repo rate of 5.50 per cent after staying below the overnight funds rate for the past three weeks.

The implied rates indicate how much rupee loans can earn in the local money market and are derived from the forward dollar premiums and US interbank rates.

Forwards reflect the hedging requirements by importers and the interest rate differentials between the United States and India.

The one-month forward closed at 3.87 per cent, up from previous close of 3.82 per cent while the six-months ended at 3.97 per cent, higher than the previous close of 3.96 per cent.