Mumbai, April 25: The rupee rallied past 41 per dollar for the first time in nine years on Wednesday, buoyed by robust capital inflows and exporters who hedged against further appreciation.

The rupee ended at 40.91, having traded as high as 40.88 — its strongest since May 1998. The gains follow a rise of more than 1 per cent on Tuesday, when it closed at 41.18.

“It was a volatile day, with strong two-way interest, but there’s still a strong bias towards the rupee strengthening,” said Rohan Lasrado, chief dealer at HDFC Bank.

“The general view seems to be that the central bank won’t intervene till inflation eases,” he added.

“Most of us expect the rupee to hit the 40-per-dollar level in some time,’’ a dealer with a private sector bank said. The central bank bought a record $19.7 billion in the four months to the end of February in a bid to thwart the rupee’s rise — 8.2 per cent this year — and the market suspects it intervened in March as well.

But the central bank’s persistent selling of the local currency has fuelled money supply and inflation, both running above the RBI’s comfort band.

With intervention seen as less of an immediate concern, traders felt confident to build long positions in the rupee, even after the RBI took steps on Tuesday to encourage more fund outflows as a way to ease upward pressure on the rupee.

The RBI did not tighten capital controls as was widely expected and left its interest rates unchanged in the review on Tuesday.

Exporters are worried that the higher prices of Indian exports will give their Chinese rivals an edge. Fieo president G.K. Gupta said, “The appreciation has affected the profitability and competitiveness of our exports.”

The RBI today said it was successful in managing the rupee exchange rate, which helped in sustaining high growth and controlling inflation. “Our policy analysis by and large has been forward looking ... Others have said we have done a commendable job,” RBI governor Y.V. Reddy said.