Singapore: The rupee hit a one-month high on Wednesday after the Reserve Bank of India (RBI) delivered another unexpected rate cut, while emerging Asian currencies barely moved ahead of US economic data and a European Central Bank meeting later this week.
The RBI lowered its policy repo rate by 25 basis points to 7.5 per cent, its second inter-meeting slash this year on the back of slowing inflation and a government commitment to fiscal discipline.
The rupee rose as much as 0.4 per cent to 61.650 per dollar, its strongest since Feb 4. Indian stocks hit a record high, while the 10-year benchmark bond yield fell.
That contrasted to recent weakness in other emerging Asian currencies such as the Chinese yuan and the Singapore dollar when central banks of those countries eased monetary policy.
"Rate cuts are positive for equities. India gets more inflows and that strengthens INR," said Sean Yokota, head of Asia strategy for Scandinavian bank SEB in Singapore.
The rupee pared most of its earlier gains on caution over possible intervention by the central bank to restrain the best performing Asian currency so far this year.
The Indian currency has risen 1.9 per cent against the dollar so far this year, Thomson Reuters data showed, as hopes of economic reforms by Prime Minister Narendra Modi attracted foreign money.
Still, some analysts doubted further appreciation in the rupee.
"The RBI, in its monetary policy statement, highlighted that the INR 'has remained strong relative to peer countries', which, in our view, is clearly the key reason behind the inter-meeting surprise from a market impact perspective," said Andy Ji, Asian currency strategist for Commonwealth Bank of Australia in Singapore.
"The RBI appears to have adopted a weakening bias alongside a number of central banks. We expect USD/INR to trade higher from here."
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