Rupee sees biggest single-day fall since August

The Indian rupee hit a one-month low and saw its biggest single-day decline in nearly one-and-a-half months on Monday, tracking weakness in other Asian currencies, while dollar demand from custodian banks due to the fall in the share market also hurt.

India's wholesale price inflation eased to its lowest level in nearly five years in August, but the central bank is likely to keep interest rates on hold later this month to prevent a revival in price pressures once the economy gains momentum.

Asian currencies took a hammering on Monday and the dollar further strengthened after data out on Saturday showed China's factory output grew at the weakest pace in nearly six years in August, and growth in other key sectors also cooled.

Caution on emerging market currencies is expected to continue as the US Federal Reserve is set to hold its policy meeting amidst concerns that it may raise interest rates earlier than previously anticipated, while Scotland is also due to hold its independence vote.

"We are seeing some kind of convergence between the rupee and other falling Asian currencies considering that the rupee

has been an outlier in this space so far," said Anindya Banerjee, a currency analyst at Kotak Securities, a brokerage in Mumbai.

"The rupee still has a lot of catching up to do here, which means that it would continue to remain under pressure until the Fed meeting provides some clarity."

Analysts were disappointed after data last week showed that India's industrial output growth hit a four-month low in July while inflation remained high.

The sharp fall in the core retail inflation print however was a relief for markets.

The partially convertible rupee ended at 61.13/14 per dollar, after hitting 61.18, a level last seen on August 13.

It had closed at 60.65/66 on Friday.

The local currency recovered some of the losses after RBI Governor Raghuram Rajan said India's macroeconomic indicators are improving and inflation has been coming down in line with central bank's estimates.

However, most traders expect the local unit to continue to struggle against the dollar, with some pointing out that the rupee may slide to 61.70-62.00 levels if the key 61.35 level is breached.

In the offshore non-deliverable forwards, the one-month contract was at 61.51 while the three-month contract was at 62.12.