Outlook for Indian rupee remains bearish

Mumbai: The Indian rupee trimmed early losses on Tuesday after a sharp slide to 13-month lows last week was seen by some investors as overdone, but the outlook remained bearish because of high oil prices.

The partially convertible rupee ended at 42.635/640 per dollar, 0.23 per cent weaker than Friday's close of 42.53/54. Markets were closed on Monday for a holiday.

The rupee hit a low of 42.92 on Friday, its weakest since mid-April 2007.

"The dollar/rupee buying by oil refiners was not sustained and some selling at higher levels by exporters and banks pushed it down," said V. Rajagopal, head of currency trading at Mumbai-based Kotak Mahindra Bank.

Oil, India's biggest import, has surged to record highs near $128 a barrel, raising the risk of the trade deficit widening. India imports more than two-thirds of its oil needs, and crude refiners are the biggest buyers of dollars.

Standard Chartered said it expected the rupee to remain weak due to slowing growth and widening trade deficit, while Goldman Sachs sees next support at 43.82. A Reuters poll showed investors have increased their short positions in the rupee and other Asian currencies.

The rupee has lost five per cent against the dollar this month and nearly eight per cent this year, weighed down by signs of slowing growth, high oil prices and 3-1/2-year inflation.

Foreigners have been buyers of about $70 million of Indian stocks in May, but they have sold a net $2.7 billion so far in 2008.

Reserve Bank of India Governor Yaga Venugopal Reddy said in Singapore that countries that allowed exchange rates to be determined by markets could not then use the currency as a policy tool to fight inflation.