MUMBAI - The Indian rupee rose to its highest in two-and-a-half months on Tuesday, buoyed by strong foreign inflows into shares, dealers said.
The absence of the Reserve Bank of India's intervention in the forex market added to the rise, they added.
The rupee rose as high as 69.56 per dollar, its strongest since Jan. 2 and 0.47 percent firmer than Monday's close of 69.89. By 0558 GMT, it was slightly off the session peak at 69.59.
Foreign inflows into Indian stock markets have surged after the odds of Prime Minister Narendra Modi coming back to power for a second term increased on the back of a wave of patriotism following India's military strike on Pakistan in retaliation for a suicide attack in the disputed Kashmir region.
For an interactive graphic on weekly FII investment, click https://tmsnrt.rs/2EUCEY9
In addition, most exporters bring back their dollars to India towards the end of the fiscal year to settle their annual accounts and repayment of debts which increases inflows.
"Typically, the rupee rises in March due to seasonal factors. But this time the Modi factor is also getting quite a bit of inflows," said a forex dealer at a state-run bank.
"The RBI (Reserve Bank of India) also seems to be waiting for the rupee to touch a specific level rather than come in intermittently and intervene. I expect RBI to intervene if the rupee rises to 69.50."
According to Refinitiv data, since 2016 three out of four times barring 2018, the rupee has moved within a 3 percent range in the month of March. However, the rally might fizzle out to some extent post March.
"Once elections start, the inflows might slow down to some extent, but if Modi returns to power with a strong coalition, then the rupee will rise further which will then force the RBI to step up its intervention," said another forex dealer.