Rupee retreats from 2-wk lows post cbank plcy.

MUMBAI: The rupee recovered from two-week lows on Thursday after the central bank refrained from hiking rates as expected, cheering the stock market.

The dollar's losses against major currencies also boosted the local currency.

India's central bank left interest rates on hold but warned of inflationary risks and unveiled steps to address persistently tight liquidity, adding to the possibility that it will resume monetary tightening in January.

The partially convertible rupee closed at 45.34/35 per dollar, after hitting 45.61, its lowest since Dec. 1, and marginally stronger than 45.395/405 at the close on Wednesday.

"Market took policy positively. Especially liquidity easing measures. There were no rate hikes, which also is positive," said Hari Chandramgathan, a senior foreign exchange dealer with Federal Bank .

"So next week we could see some movement both ways. Euro showing weakness and a break below $1.3150 will push euro lower, which is a negative for the rupee. I expect rupee to trade in a range of 45.00 to 45.70 next week," he added.

Shares ended the holiday-shortened week on a positive note as they notched a 1.1 percent gain, relieved by the central bank's decision to hold interest rates steady.

Foreign funds had dumped a net $874.29 million worth of shares since the beginning of last week until Tuesday. However, total net foreign fund inflows so far in 2010 stand at $28.4 billion, on top of the $17.5 billion invested last year.

The dollar's index against six major currencies was down 0.25 percent at 80.062 points when the rupee market closed.

The euro edged higher on Thursday ahead of a European Union summit but remained vulnerable on euro zone debt concerns, while the dollar slipped back after a surge in U.S. Treasury yields ebbed.

Dealers said onshore forward premiums edged slightly lower across tenors following the central bank's liquidity easing measures.

One-year onshore forward premium dropped as low as 231 points from 238.25 points at close on Wednesday, while the one-month premium fell to 24.75 points from 25.50 points at previous close.

"Forward premiums look a bit soft in the near term, so you might see them moving down a bit more, may be another 10-12 basis points at most, but no one really willing to play the receiving side on the forwards," a senior dealer with a foreign bank said.

In the currency futures market , the most traded near-month dollar-rupee contracts on the National Stock Exchange , MCX-SX and United Stock Exchange closed at 45.4425, 45.4375 and 45.4350 respectively, with the total traded volume on the three exchanges at about $5.3 billion.


Source : economictimes.indiatimes.com