Mumbai: In volatile trade, the rupee Tuesday dropped by seven paise to close at 55.65 against the US currency, notwithstanding RBI announcing easing of norms with regards to retention of foreign exchange earnings.
Traders said sustained month-end dollar demand from importers amid RBI maintaining a status quo on key policy rates put pressure on the rupee.
The currency opened higher at 55.40 a dollar from its previous close of 55.58 on firm local shares and dollar weakness in Asian markets at mid-session.
However, the rupee immediately turned negative on month- end dollar buying by importers, mainly oil refiners.
The mood also soured further as RBI maintained its status quo approach and kept key policy rates unchanged in its first quarter monetary policy meeting Tuesday.
During trade hours, RBI announced that corporates and exporters will be allowed to retain foreign exchange earnings as against the earlier provision that 50 percent of exporters earnings in foreign currency had to be converted into rupee. This is expected to increase the demand for rupee, said experts.
Later, the rupee touched a low of 55.85 before finally recovering some ground to settle lower at 55.65. Yesterday, it had dipped by 24 paise or 0.43 percent. If it was for Rs 880 crore FII inflows into stocks, the fall in rupee would have been greater, said forex dealers.
Bankers said some late weakness in dollar also gave some support to rupee. The dollar index was down by 0.11 percent against a basket of six major currencies ahead of the US Fed's two-day monetary policy meeting, starting late Tuesday.
"The rupee was seen quite volatile after the monetary policy review. RBI tried to influence the market by releasing new guidelines on EEFC account and forward rebooking and cancellation," said Abhishek Goenka, Founder & CEO, India Forex Advisors.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said," The rupee witnessed another volatile session, remaining on a weak note after the RBI not only maintained a status quo on CRR and Repo rates but also lowered the economic growth forecast while revising the inflation numbers higher."
The dovish comments from RBI is likely to put pressure on rupee and now the focus has shifted on to the ECB and Fed, he added.
The premium for the forward dollar closed higher on fresh paying pressure from banks and corporates.
The benchmark six-month forward dollar premium payable in January settled up at 183-185 paise from overnight close of 181-183 paise.
The premium for far-forward contracts maturing in July ended higher at 326-328 paise from 319-1/2-321-1/2 paise.
The RBI fixed the reference rate for the US dollar at 55.8070 and for euro at 68.4520.
The rupee recovered against the pound sterling to end at 87.18 from yesterday's close of 87.27 while declined further to 68.31 per euro from 68.15.
It also remained weak against the Japanese yen to 71.21 per 100 yen from last close of 71.08.
First Published: Tuesday, July 31, 2012, 21:14