Indian Rupee eases to hit a low of 44.69 per dollar

The rupee dropped to its lowest level in more than 17 months in volatile trade on Tuesday, shrugging off heavy central bank intervention as the dollar rallied strongly against a basket of currencies. The partially convertible rupee closed at 44.38/44.39 per dollar, half a percent down from Monday's close of 44.17/18.

Dealers said a combination of capital outflows from the stock market, stop-loss positions being triggered and heavy dollar buying by oil refiners pushed the rupee down, adding the local unit could hit 45 per dollar in the next couple of days.

The rupee traded in a broad 44.14-44.56 per dollar band, and the day's trough was the rupee's lowest since March 5, 2007, when it touched 44.6950. Currency markets are closed on Wednesday for a holiday and trading resumes on Thursday.

At its low, the rupee has fallen 1.4 percent in the first two days of the month. It fell 3.1 percent in August and is down more than 11 per cent in 2008, making it one of Asia's worst-performing currencies. It rose more than 12 per cent in 2007.

"Dollar demand is huge and the supply pipeline is very thin as most exporters have sold their receivables and capital inflows have all but dried up," said J. Moses Harding, head of global markets at IndusInd Bank in Mumbai. Foreigners have sold more than $7.3 bn in local shares so far in 2008 pushing the stock market down by more than a quarter.

They bought a record $17.4 bn in 2007. A widening trade deficit added to funding concerns. The trade deficit in July was $10.8 bn, expanding from $9.8 bn in June. For April-July, the first four months of the fiscal year, the deficit widened to $41.23 bn between April-July from $27.35 bn a year earlier.

Central bank dollar sales between 44.20-44.55 ensured the rupee closed above its intraday lows. Five dealers at different banks estimated the central bank had sold between $1-$2 billion in the spot market, its biggest intervention in months.

One-month offshore non-deliverable forward contracts were quoting at 44.55/44.65, weaker than the onshore rate. In the futures market, more than 42,000 contracts were dealt with the near-month contract leading the way. It closed at 44.5450 per dollar.

Two dealers said some stop-losses bunched around the 44.40 per dollar levels helped the rupee lower. R.K. Gurumurthy, head of financial markets at ING Vysya Bank, said a clean break above 44.40 would be bullish for the dollar/rupee