March 20, 2012 / 12:11 PM / 5 years ago

India rupee down on import payments; more pain seen

* Cloudy outlook on foreign fund inflow as rate cut expectation dampened

* Caution from banks before end of FY12 weighs on currency

* Dollar buys from oil importers weigh, exporters seek better levels (Adds quotes, outlook, updates to close)

By Aditya Phatak

MUMBAI, March 20 (Reuters) - The Indian rupee fell for a second consecutive session on Tuesday as outlook on foreign capital flows into local stocks and debt turned cloudy after hopes of interest rates cuts faded.

Persistent dollar demand from oil importers, the biggest buyers of the greenback in the local currency market, also weighed on the rupee, traders said.

The rupee ended at 50.39/40 to the dollar, down from Monday's close of 50.23/24, after moving in a 50.1850 to 50.4250 range during the session.

"Outlook is bearish for the rupee," said Subramaniam Sharma, director of brokerage Greenback Forex.

"Rate cut expectations from the RBI have slowly gone down and some year-end closing of open position may also weigh on rupee. And if it weakens past 50.60 then a move towards 50.80 and then 51.00 is very possible."

Most local banks will close their account books for the current financial year on March 31.

Expectations of a sharp reduction in policy rates by the Reserve Bank of India have been dampened by the sticky global oil prices, a key influencer of inflation in Asia's third largest economy which relies heavily on imported oil.

RBI Governor D. Subbarao said the bank was worried about inflation in essential items like food and fuel, but Deputy Governor Subir Gokarn noted that slowing growth and a fall in commodity prices may help rein in inflation.

Standard Chartered reduced its expectations of rates cuts in 2012/13 to 75 basis points, from 150 basis points earlier forecast, citing higher crude oil prices and a domestic excise duty hike.

Some traders, however, do not expect a sharp slide in the rupee as the central bank is seen intervening actively to support the currency.

The RBI sold a net $7.3 billion in January in the spot market, after sales of $7.8 billion in December, data released by the RBI last week showed.

The one-month offshore non-deliverable forward contracts were at 50.88.

In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all ended around 50.50, on a total volume of $4 billion. (Editing by Rajesh Pandathil)

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