* USD/INR ends at 53.96/97 vs prev close of 54.08/09
* Pair hits session high at 54.195, highest since Sept 21
* Outlook for rupee muddled; RBI keeps rates on hold
By Subhadip Sircar
MUMBAI, Oct 30 The Indian rupee recovered from a
five-week low hit on Tuesday to end the session with mild gains
on the back of a falling dollar, but the outlook for the local
currency remains weak after the central bank kept interest rates
The disappointment over the Reserve Bank of India decision
to keep the repo rate on hold at 8 percent was compounded after
the central bank signalled no further policy easing would take
place until the January-March quarter of next year.
The RBI's decision comes despite increased political
pressure from the government, which last month unveiled a slew
of fiscal and economic reforms, while Finance Minister P.
Chidambaram on Monday pledged to contain the fiscal deficit.
The focus will now remain on the government to continue its
commitment with tangible steps towards reviving growth and
shoring up the country's finances, analysts said.
"A combination of pushing rate easing further away, and
expectations of higher inflation and slower growth, will weigh
on sentiment," said Dariusz Kowalczyk, senior economist and
strategist for Asia ex-Japan for Credit Agricole in Hong Kong.
"The forecasts also make it more difficult for the RBI to
trust the government's fiscal target, and indeed the central
bank suggested it will wait for proof of consolidation."
The partially convertible rupee ended at 53.96/97
p er dollar, higher than its previous close of 54.08/09. It fell
to a session low of 54.195, its lowest since Sept. 21.
Dealers said gains in the euro on the back of lower
Spanish and Italian bond yields helped offset the rupee's
losses. The local unit was also helped earlier in session by
dollar selling by a software firm and a large private refiner.
The lack of a rate cut from the central bank threatens to
continue a period of consolidation for the rupee, which rallied
to a monthly high of 51.32 on Oct. 5, the highest since April,
on the back of the government's fiscal and economic reforms.
The central bank on Tuesday also cut its baseline economic
growth forecast for the fiscal year to 5.8 percent from 6.5
percent, while raising its estimate for wholesale price
inflation to 7.5 percent from 7 percent.
Although few analysts expect the rupee to fall back towards
the record low of 57.32 seen in late June, a lack of triggers
could lead to range-bound trading until the end of the calendar
year, they said.
"It will take improvement in data for the currency to see a
sustained recovery, and for sentiment towards India to improve
in a lasting way," said Kowalczyk, who has a year-end target for
the rupee at 54.50.
In the offshore non-deliverable forwards market, the
one-month contract was at 54.29 while the three-month was at
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 closed at around 54.27
with a total traded volume at $5.2 billion.
(Editing by Rafael Nam)