Connect to share and comment
India's rupee strengthened against the dollar on Wednesday -- posting its biggest single-day gain in a month -- after the central bank took new measures to support the ailing currency.
The Reserve Bank of India (RBI) announced late Tuesday measures to tighten liquidity further, including by lowering the amount banks can borrow or lend under its daily liquidity limit.
The measures come a week after the RBI raised some interest rates, in an aggressive step to avoid a rout of the rupee, which hit a record low of 61.21 to the dollar earlier this month.
Reacting to the measures, the rupee -- the worst-performing currency this year among major Asian nations -- firmed intraday Wednesday to 59.01 to the dollar, from its previous day's close of 59.76.
It ended local trade at 59.12, a one-week high.
The rupee has been hit by a flight of capital due to a weak economy and fears that US policymakers will scale back a stimulus package that has triggered vast investor flows to emerging markets.
The RBI also said on Tuesday that banks must maintain 99 percent of their daily cash reserve ratio requirements -- the deposits they set aside with the RBI -- against a 70 percent level now.
The RBI said in a release that "several measures taken have had a restraining effect on volatility with a concomitant stabilising effect on the exchange rate".
"The gains for the rupee (on Wednesday) are due to recent measures of the RBI," said Abhishek Goenka, chief executive of India Forex, a consultancy firm.
"The RBI measures are to confine the rupee in a range and I think they will be successful this time," said Param Sarma, chief executive with consultancy firm NSP Forex.
Sarma, who expects these measures to continue for at least 3-4 months, said the rupee may strengthen further to 58.5 levels.
The RBI has intervened several times in recent weeks, dealers have said.
The rupee's woes are the latest blow for the Congress-led government, which is desperate for economic recovery as it seeks a third term with general elections due by May 2014.