The rupee fell below the 53-level against the dollar on Wednesday,nearly touching a four-month low,as oil importers bought the US currency and fears of more capital outflows intensified.
However,suspected Reserve Bank intervention helped the currency recoup some losses before closing at 52.96/97.
The rupee touched a high of 52.55 in early trade on firm local stocks and dollar selling by exporters. However,the rupee soon started losing and immediately fell below the 53-level to 53.03 on weakness in equities amid firm dollar overseas. Dollar demand from importers also kept the rupee under pressure. It later ended at 52.96/97,a net fall of 0.44 per cent.
Dealers said the RBI also intervened in the rupee forwards market to offset the liquidity impact of its spot selling. There were also rumours of RBI intervention in the spot market through nationalised banks and simultaneous action in forex forwards and bonds to neutralise the impact on money market liquidity.
Though the rupee is likely to continue facing strong support at the 53 level in the near-term,traders expect further falls,given Indias fiscal and economic challenges,and fears that waning foreign flows will worsen the current account deficit. Experts say Indias relatively modest forex reserves do not provide enough ammunition for a strong defense of the rupee. The RBI was not so aggressive in intervening. They also feel that the rupee should weaken given the macroeconomic fundamentals. They will only cap the volatility, said a dealer.
After pouring hefty funds into the Indian equity market in the first three months of the year,overseas investors turned bearish in April and pulled out Rs 777 crore amid S&P lowering Indias credit outlook to negative from stable. This was also the first instance of monthly net outflows by FIIs since November 2011.