Most of rupee depreciation may be behind us: BofA

The rupee which has depreciated by 6 per cent over the past month, is likely to stay 'volatile' in the near term but the worst may be behind us, Bank of America Merrill Lynch said in a research note on Wednesday.

The rupee on Tuesday hit a life-time low of 58.98 against dollar but erased a major part of losses to close at 58.39 after the RBI possibly having intervened in the forex market to stem the slide.

The rupee, however, still closed 24 paise lower at 58.39 compared to its previous day's close, extending losses for fifth straight day.

In early trade on Wednesday, the rupee recovered by 19 paise to 58.20 against the dollar.

"We feel that most of the depreciation may be behind us as gold imports are reducing and likely to fall given measures taken by government.

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"Secondly oil prices are stable and thirdly government may be forced to raise flows through NRI bonds," BofA-ML said in a research note.

The report further said that in the near term, the rupee is likely to be volatile due to global events and the RBI will have to instill confidence in the market.

The rupee has weakened from 53.8 levels in April-end to over 58-levels at present and is also among the worst performing emerging market currencies in the 2013 so far.

According to BofA-ML, the rupee volatility raises near term risk to inflation and to a rate cut this month.

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"The markets will be volatile in line with global trends and near term we may see some more correction," it added.      

The Indian benchmark S&P BSE Sensex on Tuesday slumped by 298 points, or 1.53 per cent.

The 30 share benchmark index extended the fall further on Wednesday as it was trading at 18,982.59, down 160.41 points.

Meanwhile, foreign institutional investors sold shares stocks worth Rs 885 crore (Rs 8.85 billion) as per provisional data with stock exchanges.