Rupee falls most in over two months

The Indian rupee fell the most in over two months on Wednesday on sustained dollar demand from state-run banks,leading to speculation that they were buying on behalf of oil refiners. The partially convertible rupee closed at 62.39/40 per dollar compared with 61.625/635 on Tuesday.

The RBI has been directly providing dollars to state-run oil firms via a dollar swap facility since late August,taking an estimated 300-400 million off daily market trading. When these oil firms will resume their dollar purchases in markets has been a topic of speculation in recent days. The central bank has said it will gradually withdraw the oil window as the rupee stabilises,but has not indicated a timeline.

Bank of America-Merrill Lynch said in a note that the central bank should start tapering its dollar swap facilities as it has already been priced in by markets and it would be hard to continue to fund net oil imports that average 8-10 billion a month.