Re sinks to 14-month low

The rupee ended at a 14-month low today as the dollar strengthened overseas followed by a strong local demand for the greenback.

The rupee fell for the second consecutive day to close at Rs 46.00 per dollar, six paise down from yesterday's close of Rs 46.94. It hit 13-month intra-day low of 46.06 in early November. Today's closing level is the lowest since September 29, 2004.

A dealer with a public sector bank said, "Banks have stepped up purchases of the US currency to arbitrage against a costlier dollar in the offshore forwards market."

Foreign institutional investors and banks often capitalise on the difference in the rupee's value in the domestic forwards market and offshore forwards. At present there is an arbitrage of 10-15 paise, which boosted the demand for dollar.

The rupee may recover from the lows with the European Central Bank revising its euro zone rate, which may have a cushioning effect on the euro versus the dollar. The European Central Bank's interest rate decision and US economic data is slated to be release on Friday.

Even though local stock indices have touched new highs, it is not providing much comfort to the rupee, said dealers. "There are other concerns such as strong dollar against other currencies, which is ruling the rupee's movement now," said a chief dealer with a private bank.

According to latest data, FIIs bought shares worth $994 million in November, taking the total in 2005 to about $8.6 billion. Overseas, the dollar hit a 28-month high above 120 yen today as US Federal Reserve reassured that it would maintain its rate increases.

The US Fed is expected to raise rates by 25 basis points this month and also in January, which will provide more comfort to the dollar. Analysts maintain a bearish outlook on the rupee owing to a burgeoning trade deficit and narrowing rate differentials .