The currency has risen every day this holiday-shortened week as the Reserve Bank of India (RBI) raised its repurchase rate to 8.5% from 8.25% on October 25, and reiterated inflation will slow to 7% by March.
French President Nicolas Sarkozy said European Union leaders and banks have agreed to a 50% writedown on Greek debt and the regions bailout fund will be enlarged.
Risk has rallied strongly since the European summit outcome and the rupee is playing catch up, said Priyanka Kishore, a Mumbai-based currency strategist at Standard Chartered.
In the near future we could see the rupee extend this rally.
The rupee strengthened 2.6% this week and 1.5% on Friday to 48.7663 per dollar in Mumbai, according to data compiled by Bloomberg. Thats the biggest weekly gain since October 2009.
European leaders agreed to expand their bailout fund to $1.4 trillion and Sarkozy said China will cooperate closely to ensure the Group of 20 will contribute to the enlarged fund, while a person familiar said Japan plans to support the increase.
Offshore forwards indicate the rupee will trade at 49.44 to the dollar in three months, compared with expectations for a rate of 50.22 on October 26. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.