Rupee ends at 48.01/48.03 per dollar

MUMBAI: The rupee notched up its steepest single day drop in more than a month on Monday, weighed down by falling stocks and dumping of the local
unit in offshore currency markets.

The partially convertible rupee ended at 48.01/48.03 per dollar, its lowest level since Dec 16 and 1.6 per cent weaker than Friday's close of 47.25/26. It was the rupee's largest decline in a session since Nov. 13. The unit has gained 4.3 per cent so far this month but is still down 18 per cent in 2008.

"A combination of factors such as negative stocks, positive offshore dollar/rupee and some corporate (dollar) buying between 47.30-47.50 have pulled the rupee lower," said R A Sankaranarayanan, chief of trading at state-owned Bank of India in Mumbai.

The main stock index fell 1.7 per cent on the day tracking wobbly world markets, while foreign investors bought the dollar against a basket of Asian currencies as risk aversion climbed, a dealer at a foreign bank said.

The dollar rose against the Japanese yen following a steep interest rate cut by the Bank of Japan on Friday and after its chief said Japan's economy was deteriorating and conditions were likely to become more severe.

Volume was thin as most foreign banks had shut their books ahead of the year-end and investors were wary of adding big positions in a holiday-shortened week. Financial markets are closed on Thursday for Christmas.

One-month dollar/rupee volatilities, a gauge for daily fluctuations, were around 15 per cent -- a level it has stayed near for most of the month. The rupee was also pressured lower by heavy dollar buying in the offshore non-deliverable forward market, dealers said.

One-month contracts were quoting at 48.38/53 per dollar, stronger than the onshore closing rate. The outlook on the rupee continued to be gloomy with analysts forecasting more interest rate cuts and a worsening balance of payments position due to the global crisis -- strong headwinds for the local unit.

Sonal Varma, an economist at Nomura Research, said falling software services exports and a drop in private remittances would swell the current account deficit to 3 per cent of GDP from 1.5 per cent in 2007/08. Foreign investors have pulled more than $12.7 billion out of the stock market this year, and the rupee is expected to remain under pressure in 2009, too. "The capital account position is more precarious in 2008/09, with global risk aversion resulting in large net capital outflows," Varma said.