The Indian rupee could breach the 39 per dollar mark in the immediate term, despite sustained intervention mounted by the central bank to moderate its rise, Standard Chartered said in a note. 

'Clearly, the immediate bias is for further gains and USD-INR (dollar-rupee) could well break through 39.0,' Stanchart said, adding that the latest bout of the rupee's strength has been fuelled by a strong risk appetite.

'Given our forecast that the Fed will cut rates again in October, risk appetite may stay high for a while longer,' the British bank said. The Federal Reserve cut key US rates by a half-percentage point on Sept 18.

The rupee has risen more than 12.5 per cent against the dollar in 2007, making it the best performing currency in Asia. The rupee's rise has been helped by foreign inflows into local shares of about $16.7 billion till date this year.

The currency has also been undeterred by a strong intervention by the Reserve Bank of India, which has bought $39.9 billion in the first eight months of 2007, including more than $11 billion in both February and July.

Stanchart estimates that the central bank has bought around $21 billion to $23 billion since Sept18.

'However, even this has not been enough to stop the INR (rupee),' the bank said.

'Longer term, we remain bullish on the INR. The Indian economy will be relatively insulated from the slowing U.S. economy due to strong domestic demand and a diversified export base,' Stanchart said.

A balance of payments surplus is also supporting the rupee, Stanchart said.

'We now expect the fiscal year 2007/08's balance of payments' surplus to be $42 billion, compared with our initial estimate of around $25.6 billion.' Reuters