By Swati Bhat
MUMBAI (Reuters) - The rupee fell on Friday on worries of foreign outflows as the U.S. Federal Reserve further cut its monetary stimulus while government data showed India's fiscal deficit in the first three quarters inched closer to the budgeted target for the year.
The rupee closed largely flat on the week, following a sharp fall in the previous week, which was its worst since the week it hit a record low at the end of August.
The rout in emerging markets since last week has not spared India, even though the country is seen in a much stronger position than in August when similar Fed tapering fears badly hit the rupee, sending it to an all-time low of 68.85 to the dollar on August 28.
Although the rupee has fallen in January, the currency is still 9.8 percent above that record low after India has slashed its current account deficit and built up its currency reserves.
Still, India is by no means immune, although it could be spared the sharp falls in currencies such as in Argentina or Turkey. The past week has been marked by heavy foreign selling, even after the central bank surprised markets by raising interest rates on Tuesday to fight inflation.
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Foreign investors pulled out $1 billion from Indian debt markets since last week, bringing the monthly purchases to around $2 billion. In stocks, they sold a net $478 million in the previous five sessions to Thursday, bringing their monthly net purchases for the month to just $85.4 million in January.
"The recent depreciation is because of the emerging market crisis, led by Argentina and Turkey," said Samir Lodha, managing director at QuantArt Market Solutions.
"Going forward, the INR is less vulnerable than it was a few months back as currently our current account gap is less than 2 percent of annual GDP, forex reserves are good and interest rate hike is adequate to keep inflation in check, though at the cost of growth," he added.
The partially convertible rupee closed at 62.68/69 per dollar compared with Thursday's close of 62.56/57. The pair moved in a range of 62.35 to 62.77 during the session.
On the week, the unit was largely flat but it fell 1.4 percent in January.
Traders expect the rupee to move in a 62.30 to 63.50 range next week.
Month-end dollar demand from importers particularly oil firms hurt the rupee while losses in the euro also added to the pressure.
The euro fell against the yen and the dollar after euro zone inflation dropped unexpectedly in January.
In the offshore non-deliverable forwards, the one-month contract was at 63.03, while the three-month was at 63.93.
(Editing by Anand Basu)