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| The rupee had closed at 45.83/84 on Monday. The foreign exchange market was closed on Tuesday on account of the half-yearly bank closing.
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| Dealers said once the currency breached the 45.70 mark against the dollar, banks started selling the greenback.
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| However, the six-month premiums (annualised) firmed up to 1.02 per cent today, from Monday's 0.88 per cent and 0.56 per cent last Thursday.
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| The yield on the benchmark 10-year bond, meanwhile, closed at 5.1524 per cent, two basis points off its trough of 5.1327 per cent in the morning. It had closed on Tuesday at 5.16 04 per cent.
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| The trigger for the bond rally was the sharp drop in the government's borrowing target for the second half of the fiscal year. Sentiment was also upbeat on rate cut hopes.
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| Today's closing was the Indian rupee's highest since August 4, 2000. With this, the Indian rupee has gained over five per cent during the current calendar year. On January 1 this year, the rupee closed at 47.9925.
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| Today's rise was largely attributed to the smooth redemption of the $5.5 billion Resurgent India Bonds (RIB) which prompted banks to unwind their long dollar positions.
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| It was also on account of the dollar's global weakness. The dollar was down to 1.17 per euro yesterday while it slumped to 111.02 yen, just off a three-year low.
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| The RBI's absence in the market was significant as yesterday deputy governor Rakesh Mohan had indicated that the dollar's weakness would affect the exports of developing countries like India.
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| "We have seen the euro appreciating by more than 10 per cent against the dollar so far in the year. In India, this kind of movement (by the currency) has a greater impact as exports are much more price sensitive (than that in developed countries) and small movements can impact the margins and profitabilities of companies," Mohan had said.
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| The euro has appreciated by about 8 per cent over the last three weeks and by four per cent against the yen. In contrast, the Indian currency's appreciation has been limited.
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| On a real effective exchange rate (REER) basis, the rupee which was overvalued by about three per cent at the beginning of the week is marginally undervalued now on account of the relatively higher appreciation in the value of the euro and yen yesterday, dealers said.
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| In the short term, the rupee is expected to rise more as the dollar sinks against global currencies but the rise is likely to be stemmed in the medium term as the inflow of dollars may not continue to be strong. After a gap of six quarters, India had a current account deficit in the April-June quarter. |
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