Mumbai: The rupee slipped on Thursday after foreign funds trimmed holdings in local assets, though losses were capped by overseas investor flows chasing higher returns after the US Federal Reserve cut interest rates.
At 10 am, the rupee was at 39.425/430 per dollar, losing ground from the previous close of 39.39/40.
“There’s good two-way action on the capital flows, but with a limited upside and downside for the rupee,” said the chief dealer with a corporate.
“The central bank will step in to cap any large gains, and exporters will sell dollar holdings if the rupee starts weakening,” the dealer said.
India’s benchmark share index was down more than 1%, after falling 1.8% in the previous session, and dealers said nervousness was likely to persist and weigh on the market.
Foreigners have sold about $3.8 billion of stocks in the 10 sessions to Tuesday.
The Fed cut rates by a hefty half-percentage point on Wednesday as part of an ongoing aggressive effort to halt a sharp slowdown in the world’s largest economy, which could attract investment flows into India, dealers said.
Still, dealers were circumspect about building large positions in the local unit as the central bank is widely seen as intervening to prevent appreciation of the local unit.
Dealers also said that outflows related to refunds from the recent Reliance Power and Future Capital initial share offerings, were putting pressure on the local unit.