Rupee opens 16-month high on cash squeeze

Mumbai, Feb 19: The rupee today resumed 16 months high at 44.07/08 per US dollar against 44.09/10 as banks sold dollars to meet funding requirements after a monetary tightening measure took effect over the weekend.

Only the prospect of central bank intervention kept a lid on the domestic currency's gains.

Later, the partially-convertible rupee was trading at 44.07/08 per US dollar, inching toward a 16-month high of 44.03 hit earlier this month, and up from the previous close of 44.10/11.

The US and many Asian markets are shut on today for local holidays.

The central bank lifted the reserve requirement that banks must hold with it up to 6 per cent of banks' deposits from 5.5 per cent last week, a move that is expected to absorb Rs 3200 crore. The first phase took effect on Saturday and the second will be on March 3.

The rupee also found support after the dollar stayed at a near six-week low against the euro and a five-week trough versus the yen after a US government report showed on Friday the pace of home construction fell 14.3 per cent in January, fuelling expectations for a Fed interest rate cut.

Reports of two bomb blasts that killed at least 64 passengers aboard a train travelling between New Delhi and the northern Pakistani city of Lahore around midnight on Sunday, had little impact on the domestic unit.

But sentiment for the rupee was tempered by the spectre of central bank intervention. The Reserve Bank of India has consistently bought dollars to ensure exports are not hurt by a strengthening domestic currency, brokers added.

UNI