Rupee ends weaker on $ buying by RBI

The rupee slipped today owing to widespread dollar demand to cover short positions following purchases by some public sector banks.

At 5 pm , the rupee was 44.33 per $1, weaker from 44.18 on Wednesday. State-owned banks bought dollars all through the day, dealers said.

They were absorbing supplies at the Reserve Bank of India's behest as the rupee had opened above the 1-year high of 44.17-44.18 it had touched Wednesday.

The government banks mopped up dollars from 44.17-44.26 per dollar in morning trades and at 44.20-44.22 and 44.25 levels in the afternoon trades after the rupee had recovered some losses on dollar inflows from a European bank, dealers said.

"44.20 is a resistance level and usually the RBI and oil companies buy dollars at that level. The dollar/rupee typically bounces back from that level," a currency dealer at a large corporate said. A large engineering company and oil companies also bought dollars today, dealers said.

While demand from oil companies has been strong over the last few weeks, the engineering major bought dollars after the rupee slipped to 44.30 levels, dealers said.

"The company has been selling over the last few days, they must have sold around $200 million and so it could have covered today," said a company's dealer.

This coupled with state-run banks' purchases spurred short covering by other banks, weakening the rupee to 44.37 rupees, dealers said.

On the supply side, intermittent dollar sales by exporters were seen, but such flows were not strong, dealers said.

In the forward market, premiums ended lower because dollar purchases by state-owned banks said to be for RBI led to the view that rupee supply will rise in the coming days.

"It is a normal phenomenon. Whenever RBI intervenes, premiums go down," the company dealer said. The benchmark 1-year premium ended at 3.02 per cent, down from 3.20 per cent Wednesday.

Premiums also eased as some banks reversed bought dollar positions after the steep rise of 25-30 basis points in yields since Monday.

Dollar sales by some exporters as the spot rupee fell to 44.35-44.37 also eased pressure on premiums, dealers said.