Mumbai: The rupee on Tuesday pulled away from more than a 15-month high as China’s move to raise banks’ reserve requirement and weaker local stocks raised demand for dollars.
The dollar’s rise following comments from a Chinese official favouring the US currency’s recovery also weighed on sentiment.
China on Tuesday raised the reserve requirement ratio, the proportion of deposits that banks must hold in reserve, by 0.5 percentage point. The measure will take effect on 18 January.
“China’s move was clearly negative for the rupee as it immediately raises demand for dollars in emerging markets,” said a senior trader with a foreign bank.
The partially convertible rupee ended at 45.71/72 per dollar, about 0.8% weaker than its previous close of 45.34/35. It rose to 45.2850 on Monday, its strongest since 22 September 2008.
“Clearly, expectations of a recovery in the dollar also dampened sentiment for the rupee. There is some element of uncertainty built because of consistent fall in shares,” the trader added.
The dollar rose after an official with China International Corp, the country’s sovereign wealth fund, said the dollar had hit bottom and had limited room to fall further, while the yen would keep falling.
The BSE benchmark Sensex fell 0.6%, easing for the fourth successive day, as strong factory output raised expectations of the Reserve Bank of India (RBI) tightening policy.
India’s industrial output grew at a faster-than-expected 11.7% in November from a year earlier, data showed on Tuesday, growing at its fastest pace in two years.
In the currency futures market, the most traded near-month contracts on the National Stock Exchange and MCX-SX both ended at the same 45.7750 level.
One-month offshore non-deliverable forwards contracts was at 45.62/72, little changed from the onshore spot rate.