Rupee hits 5-wk high

The rupee hit a five-week high on Friday as RBI's measures to drain liquidity shore up the currency, but the unit gave up most gains as sustained dollar demand from importers to meet month-end import commitments weighed.

The partially convertible rupee closed at 59.04/05 per dollar compared with 59.11/12 on Thursday. The unit rose as high as 58.69, its strongest since June 19. The rupee's gains come after the RBI followed up on its measures last week to drain cash to defend the rupee with additional tightening measures on Tuesday.

The RBI's measures have made holding dollars far more expensive, prompting investors, particularly foreign banks, to liquidate dollar holdings, which helped the rupee.

Investors will now focus on the RBI's policy review on Tuesday. The central bank is not expected to raise the policy repo rate or raise the cash reserve ratio, but its statement could provide key details about its plans for the future.

"I think the measures have been more drastic and very impulsive. These measures are aimed more at taming depreciation in the short term," said Subramanian Sharma, director at Greenback Forex.

In the offshore non-deliverable forwards, the one-month contract was at 59.46 while the three-month was at 60.31.