Rupee closes at 45.90 as importers rush to buy dollars

The rupee today lost 37 paise against the dollar to close at 45.90""the Indian unit's 13-month closing low""as importers bought heavily, expecting the greenback to strengthen in the wake of rising US interest rates.

Today's closing rate was weaker than Friday's close of 45.53 and the lowest since September 29, 2004, when the rupee ended at 46.00/46.01.

"There is continuous demand for dollars by Indian companies and there has not been enough flow to match the demand. This is exerting a downward pressure on the rupee. We will not be surprised if the rupee breaches the 46 level this week," said a dealer at a private sector bank.

Even though local stock indices were on a recovery mode, it was not providing much comfort to the rupee, dealers said.

Analysts maintained a bearish outlook on the rupee on account of a burgeoning trade deficit, narrowing interest rate differentials between the US and India, and a deceleration in capital flows into the local equity market.

Traders are closely watching state-run banks through which the Reserve Bank of India operates if it wants to intervene to curb excessive volatility in the currency market.

Traders expect the rupee to depreciate further if the euro and the yen fail to recover against the dollar in the overseas market. The dollar rose to a 26-month high vis-a-vis the Japanese yen and an 18-month high against the euro today on expectations that the US Federal Reserve would further raise the rate, which would cushion the dollar.

The dollar has steadily gained this year on the back of a widening yield advantage, which has been further raised with the recent hike in the Fed rate to 4 per cent.

'More dollar strength seems on the cards as we step into a new year, which will further weigh on the rupee,' said dealers.