The rupee appreciated 0.4 % to 45.84 per dollar It touched 45.83, the highest level since January 20. The rupee has gained 1.5 % so far in 2010, the third-best performer among the 10 most-active Asian currencies outside Japan.
The rupee rose to its strongest level in six weeks on optimism a government plan to sell shares in state-run companies will lead to improved capital inflows.
?The rupee is showing a positive trend because capital flows are improving,? said Vikas Babu, a Mumbai-based currency trader at state-owned Andhra Bank. ?Flows are expected to pick up significantly in the coming months due to the forthcoming share sales,? he said.
Offshore forward contracts indicate the rupee will trade at 45.88 to the dollar in a month, compared with expectations of 46.08 on Tuesday. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than in the local currency.
India?s 10-year bonds advanced on speculation yields near the highest level in 17 months attracted investors.
The yield on the 6.35% note due January 2020 fell one basis point to 7.94 %.
?The current bond yields are certainly attractive for those who want to hold them to maturity,? said Kumar. ?State- owned banks also typically expand their balance sheet before the fiscal year ends in March, which spurs demand for bonds.?
Banks may also add to their holdings of fixed-income securities as deposits increase, said Mukesh Kumar, a fixed- income trader at State Bank of Bikaner & Jaipur in Mumbai. Deposits at financial institutions rose 16.6 percent to Rs 43 lakh crore ($938 billion) in the 12 months ended Februay 12, according to central bank data. Reserve Bank of India rules now require banks to put at least 25% of their cash in debt.