The rupee gained 29 paise to touch nearly six-week high of 51.61/62 against the American currency on heavy foreign funds inflows, particularly to debt markets, amid fresh dollar selling by exporters.
Traders said weak dollar overseas aided the rupee's rise, but a fall in local equities restricted the rupee's surge.
At the Interbank Foreign Exchange (Forex) market, the domestic currency resumed at its overnight closing level of 51.90/91 and immediately touched a low of 51.93 on weakness in local stocks.
However, it recovered to close at 51.61/62, up 0.56 per cent. Last time, it had finished at 51.41/42 was on December 5, last year. Foreign Institutional Investors infused nearly $1.9 billion in the debt markets and $370.9 million in equities in the current month till January 11, which led to the rupee's rise.
Bonds rise
10-year bonds rose, pushing yields toward a five-month low, on optimism the central bank’s debt purchases will boost demand for the securities.
The Reserve Bank of India will offer to buy 120 billion rupees ($2.3 billion) of notes tomorrow, it said in a statement on Jan. 10. Overseas funds raised holdings of local bonds by $1.8 billion this month to a record $27.8 billion, exchange data show. The nation auctioned on November 30 government-debt investment quotas worth $5 billion to foreigners, who must use up the limits by the end of this week or let them expire.
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“The prospect of the RBI buying bonds is keeping yields low,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank in Mumbai. “Demand from foreign investors is also probably helping bonds.”
Call rate high
The overnight call money rate finished higher at 8.70 per cent from yesterday's closing level of 8.50 per cent. It moved in a range of 8.75 per cent and 8.60 per cent.