Rupee hits 6-week low; RBI steps in to support

It ended at 61.35 per dollar compared with Wednesday's close of 60.97

The rupee hit its lowest level in one-and-a-half months on Thursday, weighed down by a sharp fall in the domestic share market and demand for the greenback from importers, but the Reserve Bank of India (RBI) stepped in to limit further losses.

Traders said the central bank likely sold dollars via state-run banks starting around 61.40 rupee levels to prevent a further fall in the local currency.

Indian shares fell for a third consecutive session, as lenders and other coal-related firms remained under pressure a day after the country's top court scrapped all but four of 218 coal blocks allocated by the government since 1993.

Traders will continue to monitor domestic share and debt price movements for clues on the direction of foreign fund flows which are key for the rupee's fortunes.

So far this year, foreign funds have bought $14.1 billion in equities and $20 billion in debt.

"The rupee opened largely flat but subsequently it started tracking the equity market. Negative sentiment in equities due to coal de-allocation by the Supreme Court hurt the rupee as well. And there was some buying from importers also," said Pramod Patil, assistant vice president at United Overseas Bank.

"Overall at the macro level too the dollar is strengthening, so we can see the negative bias on the rupee continue," he added.

Patil expects the rupee to trade in a range of 61.00 to 61.75 until the central bank's policy review.

India's top court on Wednesday scrapped all but four of 218 coal blocks allocated by the government over the past two decades, raising concerns that resorting to imports would widen the trade and current account deficits.

The partially convertible rupee ended at 61.34/35 per dollar compared with Wednesday's close of 60.96/97. The rupee dropped to as low as 61.4150, its lowest level since Aug. 8. It declined 0.6 percent on the day, its biggest single-day fall since Sept. 15.

Dollar demand from oil and other importers to meet month-end import commitments also pressured the rupee, dealers said.

The rupee could also remain under pressure ahead of the Reserve Bank of India's policy review on Sept. 30.

The central bank is expected to keep interest rates on hold until the April-June quarter of next year, when it may loosen policy, a Reuters poll showed on Wednesday.

The euro fell on Thursday to an almost two-year low against a dollar that is on track for its longest winning streak since the early 1970s, as investors anticipate that European and U.S. monetary policy will head in opposite directions.

In the offshore non-deliverable forwards PNDF, the one-month contract was at 61.70, while the three-month was at 62.28.