Rupee rose on Friday after the central bank was seen supplying dollars to oil firms, which boosted sentiment for the local unit, dealers said.
Country meets 70 per cent of its crude oil needs through imports, which are paid for in dollars. When oil firms buy dollars to meet their commitments, the rupee usually weakens. The partially convertible rupee ended at 42.66/67 per dollar, off a high of 42.6350, but still about 0.6 per cent stronger than Thursday's close of 42.90/91.
"A big pressure on the rupee has been taken off, now the RBI is providing foreign exchange to oil companies, boosting fortunes for the rupee," a dealer with a private bank said, referring to the Reserve Bank of India.
"The rupee should now be seen trading in a broad range of 42 to 43 for some time," he added. Traders said there was actual selling of dollars by the Reserve Bank of India to Indian Oil Corp, a state-run oil company. The firm bought about Rs 1 crore ($234 million) worth of foreign exchange.
Inflation rose further above 8 per cent in late May, data showed on Friday, and with higher fuel prices seen sending it to a 13-year peak early this month, analysts expect central bank action soon to ease price pressures. Dealers said the market was also eyeing a possible policy response from the central bank to check price pressures, after it said it would use all instruments to rein in inflation. An interest rate increase could draw in dollars and help the rupee rise further.