Rupee treads water in thin trading

The rupee was wedged in a tight trading band on Thursday as inflows from foreign investors were balanced by dollar demand from importers, particularly oil refiners.

Trading activity was thin in the absence of major news. The BSE Sensex was little changed.

At 10:31 a.m. (0601 GMT), the rupee was trading at 49.25/26 to the dollar, down slightly from Wednesday's close of 49.22/23. It touched a low of 49.32 in early trading.

"The spot rate is moving in a very thin range. The market is very thin and only flow-based trades are being initiated," said a foreign exchange dealer at a large state-owned bank.

Oil refiners, the biggest buyers of dollars in the local currency market, have scaled up their purchases in the past few days to clear outstanding import payments to Iran as quickly as possible as a result of tightening Western sanctions.

India, which imports about 80 per cent of its oil requirements, imports about 12 per cent of its oil needs from Iran.

The impact of the dollar buying on the rupee is expected to be cushioned by foreign inflows as inflation is easing and the central bank is now more focused on supporting growth.

So far in 2012, foreign funds have bought more than $8.6 billion of Indian equities and debt, a prime reason for the near-8 per cent rebound in the rupee in that period. The rupee slid almost 16 per cent in 2011 to a record low of 54.30.

One-month offshore non-deliverable forward contracts were at 49.62.

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 were all around 49.27, on a total volume of $448 million.

Copyright Thomson Reuters 2012