The currency on Monday rose to a nine-year high against US dollar amidst selling of the greenback by Indian banks to raise cash, touching 41.85 on Monday, the highest since June 1998.

The rupee has risen almost 12 percent since its recent low of 47 per dollar in July last year.

According to dealers, the rupee has been rising against the dollar as the Reserve Bank of India (RBI) has been keeping away from market intervention in order to tame inflation, which had run up to about 6.5 percent and refused to come down.

When RBI buys dollars from the market, it releases rupees in the market adding to the liquidity, which chases goods and services, and fuelling inflation.

The RBI had of late been raising interest rates and sucking up money from the market to control inflation.

Exporters are likely to be hit by this month's 3.6 percent rise in the rupee, as it would erode the profit in terms of local currency for dollar earnings of Indian companies and exporters, industry analysts said.

While major Indian information technology companies have been bracing for weakening of the dollar through hedging, small exporters who cannot hedge will be affected.

Textile exporters could be hit as well. "It has come to a stage where I might have to close down my factory", said Premal Udani, president of Clothing Manufacturers' Association of India and managing director of Kaytee Corporation.

He says textile manufacturers and exporters are already incurring loss because they work at a margin lower than ten percent.