Rupee down as volatile shares, euro weigh

The rupee fell on Friday, weighed by losses in domestic equities and the euro as the region's spiralling debt crisis dented risk appetite, but hopes the RBI will intervene in case of a sharp slide in the rupee limited the drop.

The partially convertible rupee ended at 52.23/24 per dollar, 0.3 percent weaker from Thursday's close of 52.065/075 after moving in a 52.07 to 52.46 band during the day.

Volatility in the rupee will continue till the euro zone problem is solved, the Reserve Bank of India's Governor D. Subbarao said on Friday. While the RBI was watching the rupee, he said he could not comment whether it would directly intervene in the market.

The RBI was suspected to have sold dollars on two occasions after the rupee hit its all-time low of 52.73 on Tuesday.

"The eco-system (foreign exchange market) is settling down after the cyclone earlier in the week. Around 52.20-52.30, the rupee looks realistically priced given the inflation situation," said Ashutosh Khajuria, president of treasury at Federal Bank.

"Volatility in rupee may continue, but it may not be too sharp given the number of steps announced to boost dollar inflows and comments from the RBI on rupee. The very fact that RBI is saying it is watching the market cuts volatility."

Khajuria expects the rupee to move in a band of 51.25 to 52.50 till the end of 2011.

A move by the government to open the country's $450 billion retail market to global supermarket giants was seen as positive for the rupee, but bigger positions could be initiated only once dollar inflows happen, traders said.

On Wednesday, the RBI eased rules on overseas borrowings by firms and raised the ceiling on interest rates for deposits by non-resident Indians.

"The recent spate of capital liberalization measures, however, is unlikely to have an immediate positive impact on the rupee, especially as global risk aversion and dollar strength continues," said Deutsche Bank in a research note.

The bank said it believes the RBI would intervene if markets were to become disorderly in a "credible" and "effective manner".

The euro fell to seven-week lows against a buoyant dollar on Friday and was set to weaken further as disagreement on how to tackle the debt crisis drove borrowing costs to new euro-era highs and boosted demand for liquid assets.

BSE Sensex posted its fourth straight weekly loss, skidding 1 percent to its lowest close in more than two years, and the euro was at $1.3228 at end of rupee trade from $1.3383 on Thursday.

The index of the dollar against six major currencies was at 79.596 points when local currency trade closed versus 78.855 points previously.

The one-month offshore non-deliverable forward contracts were quoted at 52.61, indicating a bearish short-term view on the on-shore spot rate.

The one-month onshore forward dollar premium was at 26 points from 28.25 on Thursday, while the three-month was at 58 points from 62.5 points, and the one-year premium was at 147.75 points from 160.75 points.

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 ended at 52.2875, 52.3000 and 52.2600, respectively. The total volume was at $5.82 billion.