Rupee ends flat; RBI seen intervening heavily

MUMBAI Tue Jun 26, 2012 6:12pm IST

An employee uses an electronic machine to check a rupee note inside a bank in Allahabad December 16, 2011. REUTERS/Jitendra Prakash/Files

An employee uses an electronic machine to check a rupee note inside a bank in Allahabad December 16, 2011.

Credit: Reuters/Jitendra Prakash/Files

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MUMBAI (Reuters) - The rupee ended flat on Tuesday, and not far from record lows against the dollar, as strong end-of-the-month greenback demand from state-run oil firms and weak global risk sentiment pressured the domestic currency.

The Reserve Bank of India (RBI) was forced to intervene heavily in markets to prop up the rupee after it fell to as low as 57.20 at one point in the session, threatening to approach the record low of 57.32 hit on Friday.

The session was also marked by continued disappointment after the central bank's steps on Monday to bolster the embattled rupee -- including raising the foreign investment cap in government bonds -- were seen as too mild by investors.

That continues to leave the rupee whipsawed by the volatility in global risk assets, with the currency seen as one of the most sensitive because of longstanding concerns about the India's economic and fiscal outlooks.

"The euro seems weak, which may lead to a lower rupee opening on Wednesday. But as long as the rupee doesn't close below 57.15, it may still have some positive upside," said Naveen Raghuvanshi, associate vice president at Development Credit Bank.

The rupee settled flat at 57.01/02, unchanged from Monday's close.

Demand for dollars from oil refiners were a drag on the rupee, traders said. Such purchases tend to spike at the end of each month.

Analysts see few catalysts that could lead to a significant rebound in the rupee, unless India can deliver on plans to attract long-term investments.

One-month offshore non-deliverable forward contracts were quoted at 57.43, reflecting expectations for further weakness ahead.

Some of the positive news on this regards, such as IKEA's plan to invest 1.5 billion euros in India or Coca-Cola's KO.NS announcement on Tuesday it would invest $5 billion from 2012 to 2020, helped sentiment, but not enough to change concerns about the lack of bolder government measures.

Nomura downgraded India's economic growth forecast for the year ending in March 2013 to 5.8 percent from its previous 6.7 percent forecast, citing a "deadlock" in fiscal and monetary policy.

"The longer the economy stays in the current deadlock, the bigger the policy shock that will be required to get out," Nomura said in the report dated on Monday.

The rupee has hit a succession of record lows this year in a slide that began in the middle of 2011. It has fallen about 7 percent this year, making it the worst performing currency monitored daily in Asia by Reuters.

In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, the United Stock Exchange and the MCX-SX all ended at 57.03. The total volume was at $6.02 billion.

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