MUMBAI — The Indian rupee yesterday climbed to its highest close in five days, after inflation shot to a three-year high and triggered hopes the central bank would let the currency appreciate to rein in prices.
The partially convertible rupee ended at 39.95/96 per dollar, 0.18 per cent above Thursday's close of 40.025/035.
The data triggered talk the Reserve Bank of India (RBI) may raise rates at a policy review on April 29 or would allow outsized appreciation of the rupee to rein in inflation.
"If the RBI raises interest rates, that would add to the rate differential," said V. Rajagopal, head of currency trading at Kotak Mahindra Bank.
"Historically, we've seen the rupee gaining when this has happened and again today, sentiment is in this direction."India's benchmark lending rate at 7.75 per cent is 550 basis points more than the US federal funds rate of 2.25 per cent, making investments in Indian assets more attractive.
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