By Swati Bhat
MUMBAI (Reuters) - The Indian rupee strengthened to a six-week high on Wednesday, buoyed by gains in local stocks and inflows towards initial public offerings, but bonds stayed largely steady ahead of an interest rate review due later this week.
The partially convertible rupee was at 74.17/18 per dollar, as of 0805 GMT, after touching 74.0925 earlier, its strongest since June 22. It had closed at 74.28 on Tuesday.
"There seems to be good flows into the market and not much resistance from the RBI (Reserve Bank of India) so far. If global cues are also positive, we could see the rupee break 74 this week," a senior trader at a private bank said.
He, however, expects the central bank to intervene to smoothen any sharp rise in the rupee.
Shares hit record highs for a second day, with the broader Nifty breaking the psychological 16,000 mark for the first time on Tuesday, and four companies opened subscriptions for their IPOs, leading to a flurry of dollar inflows. [.BO]
A recent poll too showed the rupee being an outlier versus other regional peers with bearish bets on the currency trimmed by more than a half.
"The rupee is one of the better placed currencies in Asia given India's sharp decline in COVID-19 cases over recent weeks," TD Securities analysts said in a recent note.
Traders, however, will be cautious ahead of the RBI's monetary policy decision on Friday where the central bank is widely expected to keep rates steady but its commentary around policy normalisation will be closely monitored.
India's benchmark 10-year bond yield was steady at 6.20% with traders staying on the sidelines ahead of the rate decision.
HSBC Bank expects the RBI to start draining surplus liquidity, raising the reserve repo rate and changing its stance to neutral from the fourth quarter of 2021/22.
"In the upcoming August 6 meeting, however, the RBI may want to sit tight amid fears of a third wave of COVID-19 cases, but is likely to sound more concerned about inflation than before," economists at the bank wrote in a note.
(Reporting by Swati Bhat; Editing by Subhranshu Sahu)