Rupee recovers after hitting record low of 64.13/dollar

The rupee slid to a record low on Tuesday, falling past 64 to the dollar, before the Reserve Bank of India (RBI) stepped in to support a currency facing the brunt of a selloff from emerging market assets ahead of an expected tapering of US stimulus.

The currency reversed most losses as the RBI was cited selling dollars both in the spot and forwards markets, which helped the rupee recover from a fall of 1.6 percent, after a rout of 2.3 percent on Monday.

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The rupee remains the worst performer among the major Asian currencies tracked by Reuters as emerging market current account gap economies like India and Indonesia get hammered as an outflow of capital will put the funding of their deficit in doubt.

The central bank's suspected intervention on Tuesday came after it was largely seen as staying away during the rupee's rout on Monday.

Policy makers continued to take steps which were largely perceived as incremental such as Monday's move to increase the foreign direct investment cap in asset reconstruction companies to 74 percent from 49, and a ban on the duty-free import of flat-screen TVs from August 26.

The central bank also eased investing rules in Indian shares and bonds by non-resident Indians.

"The main reasons for the fall in the rupee are India's weakening economic outlook and (fears of) Fed tapering of bond buying," said Anil Kumar Bhansali, vice president at Mecklai Financial.

"The RBI intervened at 63.85 levels and sold forward dollars, which brought the premiums down and 10-year bond yields fell," he said.

The partially convertible rupee closed at 63.25/26 per dollar compared with 63.13/14 on Monday. It fell to 64.13 in the session, breaching its previous low of 63.30 seen on Monday.

The broad selloff in the equity and debt market has added to the rupee's woes with foreign funds pulling out their investments. Foreign funds have sold debt and equity worth USD 11.8 billion, with USD 10 billion coming from debt, since late May when fears of the US tapering first started.

In the offshore non-deliverable forwards, the one-month contract was at 63.92 while the three-month was at 64.98.

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 63.52 with a total traded volume of USD 3.9 billion.