The Hindu Business Line : Rupee touches 8-month low

THE rupee fell against the dollar for the third day in a row and touched a new low that was seen last in December 2004, as demand by oil companies pushed up the dollar.

The rupee opened at 44.05/07 and rose to 44.03/04 as there were good dollar inflows. However, dollar buying by oil companies pulled the rupee down and the domestic currency closed at 44.13/14, against Tuesday's close of 44.02.

A dealer with a public sector bank said the dollar has strengthened across the board. However, the rupee was holding out against the greenback, so far, because of the strong FII inflows into the equity market. But the drying up of the FII inflow has lifted the dollar against the rupee, he added.

Mr Prakash Rao, Head (Forex trading), UTI Bank, however, said FIIs are still net buyers in the market, so there is still no outflow and therefore it is not a big concern.

"The market is nervous. In such a situation, RBI can easily sell dollars. But my guess is that RBI is refraining from it because it will give opportunity for arbitrage between the spot market and the non-deliverable forwards market," he said. In its annual report released on Monday, the RBI had expressed concern over the rising oil prices.

With oil price ruling at record high, the short-term outlook for rupee, according to analysts, seems to be not so good. Oil companies would be required to buy more dollars to pay for imported crude, which crossed $70 a barrel.

In the forwards market, the 12-month premium closed at 0.5 per cent (0.63 per cent) and the 6-month premium closed at 0.45 per cent (0.66 per cent).

Most dealers said the rupee is likely to remain at these levels for some more time.

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