MUMBAI: Rupee strengthened to a three-week high on Monday after aggressive RBI rate cuts, plans for an extra $4 billion of government spending and
gains elsewhere in Asia boosted local shares.
At 11:15 a.m. the partially convertible rupee was at 49.37/38 per dollar, 0.4 percent higher than its previous close of 49.57/58. It hit a high of 49.185 in early deals, its strongest since Nov. 17.
"The rupee opened with a gap today. The sentiment is positive after the central bank rate cuts over the weekend and also the government's measures to boost the economy, looks like we will see a range 49.00- 49.50 today," said V.Kumar, chief dealer at State Bank of Travancore.
"The outlook for the rupee for sometime will be positive, until some more bad news comes out from the international front." Shares rose as much as 4.9 percent in opening deals, led by banks, which raised hopes foreigners might buy stocks. Foreign capital flows have been a key driver for the rupee over the last two years.
Foreigners have so far in 2008, withdrawn a net $13.7 billion from shares, after record net purchases of $17.4 billion in 2007. The RBI on Saturday slashed its key interest rates by 1 percentage point to boost growth and confidence, and the government detailed its stimulus plans on Sunday.
One-month offshore non-deliverable forward contracts were quoting at 49.47/62, slightly weaker than the onshore spot rate. However, the spread between the onshore and offshore rates has narrowed sharply, indicating a change in sentiment.
