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Rupee ends higher at 47.13/$ after hitting lifetime low

The rupee ended stronger on Tuesday, clawing back from another record low, as dollar demand from importers stabilised, prompting banks to pare long positions and exporters to bring in remittances, dealers said.

The rupee closed at 47.1200/1300, after sinking to a record low of 47.21 in the morning. The rupee also finished stronger than Monday's record closing low of 47.1450/1550.

"Importer demand seemed to have died out," a trader with a state-owned bank said. "It was never unusually high but with the rupee weakening this morning, those with short-term liabilities covered exposures."

Traders believe the central bank may also have intervened to temper volatility by selling dollars through state-run banks.

With the rupee seen to be overvalued by about three percent on a trade-weighted basis, they believe the central bank is not averse to a depreciation but wants to prevent sharp drops.

With Tuesday's gains, the rupee has reversed a three-day losing streak, triggered by end-of-the-quarter dollar demand and dwindling supplies, particularly from foreign funds, which are assessing the impact of new stock market trading rules, traders said.

The country's stock market regulator abolished from Monday the century-old carry forward system, and introduced options trading on individual stocks and expanded rolling settlement to a larger number of shares.

The carry forward system accounted for over 90 per cent of trade on Indian bourses and volumes were down sharply the last two days as investors grappled with the new trading rules.

Data from the capital market regulator showed that foreign fund purchases of Indian shares and bonds in the last week of June were down at $49.8 million from $112.1 million in the previous week.

But despite the recent dips, the rupee has lost just under 1 per cent this year, as it's been supported by strong dollar portfolio inflows and sluggish dollar demand from importers, traders said.

Intra-day report

Indian government bond prices were volatile in choppy mid-morning trade on Tuesday, with trading sentiment hit after the rupee hit new lows against the dollar, dealers said.

In late morning, the rupee was quoted at 47.1600/1800 per dollar, off a lifetime low of 47.21 hit in some deals, but still weaker than the previous close of 47.1450/1550.

Dealers said the volatile rupee had dimmed chances of an early bank rate cut, leading some traders to pare positions.

The benchmark 11.50 per cent 2011 bond was dealt at Rs 112.63 in mid-morning, off Rs 112.70 in early trade and Monday evening's Rs 112.60.

Bond yields had dipped to record lows last week on growing expectations of a central bank rate cut amid comfortable money market conditions and after the release of gloomy economic data. Interest rate cuts overseas also boosted hopes of a local rate cut.

But a sharply weaker rupee has dampened buying sentiment since Monday. The 10-year benchmark yield , which had dropped to 9.50 per cent on June 27, is now at 9.55 per cent.

The central bank has in the past tightened interest rates as part of measures to ward off pressure on the rupee.

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