The rupee declined on speculation that importers will sell the currency after it closed at a nine-year high on Thursday. The rupee fell 0.1% to 40.86 against the dollar at the 5pm close of trading in Mumbai from 40.8025, according to data compiled by Bloomberg.
The rupee on 7 May had reached 40.545, the highest intra-day since May 1998. It has failed to extend gains since. A stronger currency helps importers to stock up on the dollars that are needed to pay for shipments.
The Reserve Bank of India (RBI), which bought dollars for a fifth month, had slowed purchases to $2.3 billion (Rs10,120 crore then) in March, from a record $11.9 billion in the month before that, according to RBI data.
The currency has surged almost 8% this year on speculation that RBI is reluctant to stem gains as a stronger rupee will help in its battle against inflation.
Growth in import costs for the Indian economy slowed to 14.5% from an average 31% in the prior six months, trade ministry data showed.
Gains in the rupee helped moderate the cost of imported goods, including crude oil, even as its price climbed almost 25% from a 20-month low on 18 January.
RBI deputy governor Rakesh Mohan on Wednesday said the volatility in the currency market has declined “overall” and the rupee’s exchange rate is determined by the market while the central bank does “actively” intervene.