Rupee dips after eight-year high

The rupee declined, reversing gains earlier today, on speculation importers bought dollars after the local currency reached the highest in eight years.

The cash shortage in the banking system prompted sales of the US currency and helped the rupee strengthen beyond 43 to the dollar for the first time since June 1999. That encouraged importers, such as refiners, to buy dollars as it meant they had to convert fewer rupees for their overseas payments.

"We saw dollar demand from refiners emerging after the rupee's sharp appreciation,'' said Pradeep Khanna, chief currency trader at HSBC Holdings Plc in Mumbai.

"That may have also triggered banks, which had sold dollars earlier, to buy them back.''

The rupee fell to 43.0875 against the dollar as of the 5 pm close in Mumbai, from 43.075 yesterday, according to data compiled by Bloomberg. The currency earlier today rose to 42.8450, the highest since June 7, 1999.

The currency has advanced 2.7 per cent in the past three months, the fourth-best in the Asia-Pacific region. The nation's imports rose 25.1 per cent to $14.36 billion in February, the Commerce and Industry ministry said on April 2. Oil imports in the 11 months ended February 28 rose 32.5 per cent, while non-oil imports rose 25.6 per cent.

Asia's fourth-largest economy meets three-quarters of its energy needs from abroad.