Rupee closes flat; RBI rate decision key

By Subhadip Sircar

MUMBAI (Reuters) - The rupee ended flat on Friday, but extended losses for a second week, as caution set in ahead of an expected interest rate hike by the central bank at its policy review next week.

The Reserve Bank of India is widely expected to raise its key repo rate by 25 basis points on Tuesday - its second consecutive monthly hike - as it tries to tackle rising inflationary pressures, a Reuters poll showed.

However, in a bid to further ease funding costs, the central bank is also expected to further ease the marginal standing facility rate by 25 bps, the poll showed.

An interest rate hike could nonetheless dent sentiment by raising concerns about an economy already growing at its slowest pace in a decade.

"The RBI has various options on the policy. However, a hike in the repo rate will be a dampener for the rupee," said Hari Chandramgethen, chief forex dealer at South Indian Bank.

The rupee closed at 61.46/47 per dollar, unchanged from its Thursday's close. It traded in a 61.35-61.79 band in the session.

For the week, the currency ended down 0.3 percent.

Dealers also cited pressure on the rupee from dollar buying by custodian banks. Indian shares fell on Friday as blue chips were hit by profit-taking.

In the offshore non-deliverable forwards, the one-month contract was at 61.97, while the three-month was at 62.95.

In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed at around 61.51 with a total traded volume of $2.3 billion.

(Editing by Anupama Dwivedi)