Unlike fellow emerging market giant China, India allows its currency to float freely
INDIA’S rupee has risen against the dollar amid speculations that the central bank had intervened in the foreign exchange market to prop up the ailing currency, traders said.
The currency has fallen sharply in recent days to a 28-month-low of 50 rupees to the dollar as traders rush to the safe haven US unit due to fears over the outlook for the global economy.
The central bank was believed to have sold the greenback at around 49.8 rupees, "which helped the rupee recover", a dealer at a Mumbai-based trading house said.
"After the (suspected) intervention, the rupee pulled back to 49.09 per dollar," he said.
"The Reserve Bank of India may not allow the rupee to fall further," he added.
A central bank spokeswoman was unavailable for comment and the size of the intervention was not immediately clear.
The RBI does not target any particular currency rate or direction and intervenes in the foreign exchange market only to curb excess volatility.
Weak local equity markets - which have slid more than 20 percent so far in 2011 - have also put pressure on the rupee as overseas funds sell Indian stocks.
The rupee was last trading at 49.37 to the dollar, with dealers expecting it to trade in a narrow range for some time.
The fall in the rupee is fuelling India`s inflationary woes, making imported goods such as foreign crude oil, on which the country is reliant, more costly.
India`s annual inflation is running at near double-digits and is the highest among most leading global economies.
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