The rupee rose on Monday, pulling back from its biggest fall in a month-and-half in the previous session as gains in domestic shares fuelled hopes for more inflows while a weak dollar also helped sentiment.
The partially convertible rupee closed at 44.35/36 per dollar, half a percent stronger than Friday?s close of 44.59/60, when it dropped 0.65%, in its biggest one-day fall since early September.
The dollar-rupee is bouncing end-to-end from sell zone of 44.55-44.65 and buy zone of 44.25-44.35, said J Moses Harding, head of global markets at IndusInd Bank in Mumbai.
Two factors are dominating now, a general dollar weakness ahead of quantitative easing and Coal India IPO outflows in the first week of November. These two forces are good enough to keep the rupee in a tight range within 44.25-44.65.
India?s 12-year bonds fell for a second day as an increase in money-market rates boosted the cost of purchasing the notes with borrowed funds.
The securities also dropped on speculation RBI would raise benchmark interest rates at a November 2 review to help cool inflation.
The overnight rate at which local banks lend to each other climbed to 7% on Monday from 5.75% at the end of last month, data compiled by Bloomberg show.
?Bonds are lower because liquidity remains tight and the market is expecting a rate increase at next week?s policy review,? said Anoop Verma, a fixed-income trader at Development Credit Bank in Mumbai.
The yield on the 8.13% note due May 2022 climbed one basis point to 8.11% on Monday.