The Indian rupee gained on Friday after the central bank was rumoured intervening late in the session to support a currency that had floundered and been on the verge of wiping out all gains since policymakers' measures to drain liquidity.
The currency gained 0.3 percent for the week, marking its second consecutive weekly gain, even as traders said the Reserve Bank of India's measures to raise short-term interest rates to support the rupee unveiled late on Monday have not yet had a meaningful impact.
Concerns have risen about the success of the steps after the government cancelled a treasury bill sale and the central bank had to reject most bids at a special bond sale as investors demanded higher yields.
At least the rupee drew some solace from Prime Minister Manmohan Singh's comments that the RBI can withdraw measures once short term pressures ease.
"RBI will clearly not give up the vigil. They are trying to achieve a balance between demand and supply," said Satyajit Kanjilal, chief executive at ForexServe.
He said the rupee has a key resistance at 58.80 to the dollar which, if breached, may see a move to 57.30 levels.
The partially convertible rupee ended at 59.35/36 per dollar, against its previous close of 59.67/68. For the week, it ended 0.3 percent higher.
The central bank seems to have adopted a pattern of intervening in late trades in recent sessions, dealers said.
"Maximum impact with minimum effort," a dealer summed it up.
Bond yields posted their worst week in four-and-a-half years with yields rising 40 basis points, roiled by the RBI's steps.
Short positions in the rupee increased during the past two weeks despite authorities' steps to stabilise the currency, a Reuters poll showed.
In the offshore non-deliverable forwards, the one-month contract was at 59.76 while the three-month was at 60.58.
In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed around 59.53 with a total traded volume of $2 billion.