The rupee fell against the dollar for a third session, tracking weakness in the euro and in Asian currencies. Economists said domestic policy action was key to a revival.
The currency closed on Friday at 55.46; the previous close was 54.96 per dollar. There was a two-week high depreciation in a single session of 0.9 per cent, even as foreign funds were net sellers in equity markets. There were net foreign fund inflows of Rs 571 crore, showed data from the Bombay Stock Exchange.
The rupee trade was range-bound on Friday, with the bigger fall towards the day’s end. It touched an intra-day high of 55.34 and a low of 55.65. Traders said there were dollar flows from state-run banks at the day’s low levels that helped the rupee regain at close.
The dollar index, measured against six major currencies, inched up to 82.86 from 82.81 a day before. Earlier this week, the dollar index was at 81 levels.
Steep appreciation in the first three days of the week helped the rupee close with a 0.3 per cent gain over the previous week’s close. It had traced levels back to 54 per dollar earlier this week, with help from foreign fund inflows.
“The currency had gained last week on account of hopes from the government on tackling policy reform issues. But the disappointing government securities action and yesterday’s European Central Bank meet wiped out the gains,” said analysts at India Forex Advisors.
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“Official steps to boost capital inflows, diminished tail risks in Europe and a tentative stabilisation of cyclical indicators should all underpin the rupee. However, we do not see the substantive policy action necessary to propel a sustained rebound,” said economists from Standard Chartered Bank.
The bank expects the rupee to be at 57.50 per dollar by the end of the current quarter and 55 per dollar by the end of the financial year.
As part of measures to help the rupee, the government had increased the foreign investment limit in gilts from $15 billion to $20 bn and relaxed the residual maturity norms.
However, the demand from foreign institutional investors in the auction of investment limits was lacklustre, reflecting lesser confidence in the domestic economy.