Rupee trades at 42.96/97 Vs per USD

Mumbai, Apr 10: The spot rupee turned tail from eight years high and traded at 42.96/97 during this morning session compared to 42.90/92 on last close as importers stepped up dollar purchases, but losses were capped as banks bought rupees to meet new statutory reserve requirements.

Leading traders said the rupee resumed high at 42.89/91 against per USD, later it fluctuated between 42.88 and 42.99 per dollar during this mid morning session.

On Monday, it had hit an intra-day high of 42.76, its highest since May 1999, before suspected intervention by the Reserve Bank of India checked its gains.

Last month, the Central Bank raised the cash reserve ratio (CRR), the proportion of deposits that banks must hold with it, for the third time since early December.

The first leg of the increase in the CRR kicks in on April 14 and is estimated to absorb Rs 7750 crore ( USD 1.8 billion) from the system.

The banks may be compelled to sell dollar holdings to meet the new requirements, lending support to the rupee, the dealers pointed out.

Further, the Central Bank reviews monetary policy on April 24, and a large section of the market believes it will raise interest rates again, making the rupee more attractive.

The Central Bank is thought to be uneasy with the rupee's pace of appreciation, and is suspected to have intervened regularly since last November to try to curb its rise, bankers added.

UNI