Rupee falls most in seven weeks

The rupee depreciated against the dollar, as traders cut positions in riskier assets, eyeing developments in the euro zone.

The currency closed at 50.18 against the dollar, 70 paise, or 1.4 per cent, lower than its close on Tuesday. This was the currency’s biggest intraday fall in the last one and a half months. Traders said there was intervention from the Reserve Bank of India to the tune of $100-200 million, but this only helped control volatility to some extent.

“The fear is the debt crisis could spread to Italy, even after Prime Minister Silvio Berlusconi resigns,” said India Forex Advisors. The euro was trading at $1.36 on Wednesday, compared with $1.38 when the rupee closed on Tuesday, while the index of the dollar against six major currencies rose to 77.46 points, against 76.948 points yesterday.

“Elevated energy prices and weakness in domestic equity indices also weighed on the rupee,” said a treasury official of a public sector bank.

Persistent dollar demand from oil importers maintained pressure on the rupee. The forward premia rates declined further and the six-month forward premium ended lower at 4.28 per cent. The one-month onshore forward premium was 25.25 points from 24.75 points on Tuesday, while the three-month was 65.25 points from 65 from the previous close.

Traders expect the currency to remain under pressure in the short term, as events unfold in the euro zone. “There were rumours that the European Central Bank would call an emergency meeting on Wednesday. Any comment on Italy would have an impact on the rupee, as investors would rush to a safe-haven currency,” said a forex dealer with a foreign bank.