The Reserve Bank of India (RBI) stepped up dollar sales to prevent the currency from falling towards recent record lows, three traders told Reuters on Friday. The RBI likely sold dollars via state-run banks starting at around 67.20 rupee levels. Two traders said the central bank was also intervening in the forwards market.
Friday's intervention comes a day after the rupee jumped 3.3 per cent, its biggest one-day gain since mid-January 1998.
Stock markets also traded higher after a weak start. The BSE Sensex traded 160 points higher, while the Nifty hit 5,450 levels today.
The market will keenly watch Prime Minister Manmohan Singh's likely statement on the economy later today. On Thursday, he said "I cannot deny that the country is faced with a difficult situation... There are some domestic factors. There are also some international factors arising out of change in U.S. monetary stance," he said, noting that rising tensions in Syria could drive up oil prices.
The currency will also be influenced by GDP data set to be released later in the day. According to a Reuters poll, April-June GDP likely grew at 4.7 per cent, lower than decade-low growth of 5 per cent seen in the last fiscal year.
Despite a sharp rebound, market analysts were not sure that the recovery would last. Technical analyst Rajat Bose told NDTV said unless the rupee starts trading above 65.25, there's little hope of sustained recovery.
Ambareesh Baliga said investors should "hold on to cash" because the panic is here to stay. There will be lots of opportunities to buy large cap stocks at lower levels, he added.