NEW DELHI, 5 April 2007 — The Indian rupee rose to its highest in nearly eight years against the US dollar yesterday, as banks sold dollars to raise funds to meet new central bank requirements to keep more cash on hand.
The rupee climbed to 42.90 per dollar in intraday trading, breaching the 43 per dollar mark for the first time since June 1999. It later weakened to end at 43.09 per dollar, slightly above Tuesday’s close of 43.07 per dollar.
The rupee has appreciated nearly 10 percent since July, helped by robust foreign investment flows and remittances, but the pace was moderated by intervention of the central bank, which frequently bought dollars to keep rupee from rising too quickly.
In recent days, however, the Reserve Bank of India has stayed away from the currency market, letting the rupee rise faster than earlier, bankers and analysts said.
The rupee’s rise this week has been largely caused by banks trying to meet new central bank requirements meant to cool the economy by reining in lending.
Last Friday, the RBI announced a half point hike in the Cash Reserve Ratio, the proportion of deposits that commercial banks must hold in cash.