* Rupee ends at 56.38/39 per dlr vs 56.17/18 on Wed
* RBI to take into account current account gap for policy decisions-chief
* Heavy dlr buying by large state-run bank, oil firms weighs
By Swati Bhat
MUMBAI, May 30 (Reuters) - The Indian rupee dropped for a third straight session on Thursday, hitting a 10-month low towards market close as the central bank chief’s comments on inflation still being high and concerns over the current account gap dented rate cut hopes.
The Reserve Bank of India will take into account macro economic factors and “more importantly” the current account deficit for policy decisions, Governor Duvvuri Subbarao said on Thursday.
Until recently, the market had been certain the central bank would cut rates by another 25 basis points at its June 17 review, but Duvvuri’s latest comments have muted those hopes.
Earlier in the session heavy dollar demand for defence payments and month-end import demand from oil firms had continued to hurt the local unit.
Traders said heavy demand from a large state-run bank was seen throughout the day, likely on behalf of the government for making some defence purchase payments.
The market will now focus on the March-quarter growth data, due to be released around 0530 GMT on Friday, for cues on whether the government’s reform measures and three quarter point rates cuts by the central bank have given the economy any traction.
The median consensus of 37 economists showed gross domestic product expanded 4.8 percent year-on-year, better than the 4.5 percent growth in the previous three months, which was the lowest in fifteen quarters.
“Rupee fell towards close due to governor’s comments. Earlier, there were huge bids from a state-run bank and later oil joined to put pressure on the rupee. Overall, emerging currencies are under pressure,” said Hari Chandramgethen, head of foreign exchange trading at South Indian Bank in Mumbai.
“The RBI may step in to stabilise the currency if it remains volatile, hence I think 56.50 should cap for the time being. However, if the fall is in line with the euro and other majors, they will stay away,” he added.
The partially convertible rupee closed at 56.38/39 per dollar after hitting 56.39, its weakest since July 25, 2012, and 0.4 percent lower compared to 56.17/18 on Wednesday.
Traders said choppy domestic shares also failed to provide respite to the rupee.
Indian shares rose on Thursday in a volatile session marked by expiry of May derivatives contracts, led by gains in auto stocks such as Tata Motors and M&M after posting market beating quarterly earnings.
In the offshore non-deliverable forwards, the one-month contract was at 56.74 while the three-month was at 57.31.
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 56.67 with a total traded volume of $4.8 billion. (Editing by Sunil Nair)