Mumbai: The rupee fell on Thursday as sentiment was hit by a slight fall in the share market and as rising oil prices triggered concerns of more dollar demand from refiners to pay for imports.
The partially convertible rupee ended at Rs47.60/61 per dollar, about 0.80% weaker than Wednesday’s close of Rs47.24/25.
“The Sensex was sharply down for most of the day. It created some uncertainty,” a senior trader with a foreign bank said. India’s main share index fell 0.4% in choppy trade on Thursday. It had eased as much as 1.5%, and rose as much as 0.7%.
The share market is still up about 90% in three months, attracting massive foreign investment flows, and analysts expect the rupee to strengthen over coming months.
“The rupee, which has gained 6% after the election results, is likely to strengthen further in the medium-term due to higher growth and increased capital flows,” Citigroup analyst Rohini Malkani said in a research note on Thursday.
“However, in the immediate near-term, like most other emerging market currencies, the rupee is likely to oscillate between risk aversion and return to risk.”
Foreign capital is a key driver of the rupee and overseas portfolio inflows of more than $7 billion since mid-March have helped the rupee climb about 10% from its record low of Rs52.2 in early March.
Last year, record outflows of more than $13 billion had pushed the rupee down by about a fifth.
Higher oil prices also weighed on sentiment, traders said. Oil, India’s biggest import rose above $72 a barrel on Thursday after the International Energy Agency raised its estimate for 2009 oil demand.
Oil refiners are the biggest buyers of dollars in India, which imports about 70% of its oil needs, and higher oil prices are expected to increase their dollar demand as well as put pressure on the trade deficit.
One-month offshore non-deliverable forward contracts were quoting at 47.70/80, slightly weaker than the onshore spot rate.