MUMBAI: The Indian rupee scaled a new two-month high on Wednesday, boosted by strong dollar inflows as global funds seek higher returns in the Asia's third largest economy, while oil buying capped the gains.
Recent measures by the government to raise the ceiling on foreign investment in debt and higher interest rates on deposits by non-resident Indians are helping the rupee, traders said.
A government decision on Tuesday to raise the import duty on gold and silver would also help the currency, traders said.
At 10:15 A.M. (0445 GMT), the rupee was at 50.57/50.58 to the dollar, a level last seen on Nov 15. It closed up 1.24 percent on Tuesday at 50.73/74.
"The interest rate play is strongly in favour of rupee bulls. Now, the government has increased the import duty on bullion which will cut dollar demand from bullion purchasers," said J. Moses Harding, head of the asset-liabilities committee at IndusInd Bank.
"Foreign investors are buying into debt in a big way and equity in a small way. Large ticket NRE (non-resident external) funds are pouring in giving strength to the rupee," Harding said, who expects the rupee to break 50.50 to the dollar and subsequently trade in a 50.05-49.80 range.
India is the biggest consumer of bullion and the dollar-quoted yellow metal along with crude oil forms a major chunk of the country's massive import bill which is typically higher than the exports.
Traders said dollar demand from domestic oil companies and choppy local shares were capping the rupee gains.
One-month offshore non-deliverable forward contracts were quoted at 50.53, indicating some weakness in the short term in the onshore spot rate.
In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all at around 50.68 on total volume of $807 million.
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