Rupee snaps 2 days of gains

MUMBAI: Snapping two days gains, the Indian rupee fell against US dollar on dollar buying by public sector State Bank of India, month end demand from oil and defence companies.

Indian rupee closed 62.51 down 0.75% against the US dollar. Rupee opened at 61.90 and touched intraday low of 62.56 and a high of 61. 76. Rupee had closed at 62.07 on Thursday.

There was some nervousness in the market ahead of the current account deficit numbers, which will be released on Monday.

"Rupee fell on nervousness that current account deficit would exceed market expectation," said N S Venkatesh head treasury IDBI Bank.

Rupee has been gaining on banks accelerated efforts to borrow US dollars that is expected to bring in as much as $5 billion in the next few weeks, boosting the RBI's efforts to shore up reserves. The new RBI governor Raghuram Rajan took a series of steps to arrest rupee's volatility, which had fallen to 68.80 on August 28.

"The trigger for sharp recovery from above 68 to below 62 is combination of administrative measures to restrict dollar demand, build-up of RBI's fire-power by shoring up reserves through the swap window and dilution in lack of optimism on growth and domestic macroeconomic fundamentals," said Moses Harding Executive Director & Chief Business Officer, Lakhsmi Vilas Bank.

In the offshore non-deliverable forwards market, one-month rupee contract was trading at 63.25.

Yields on 10-year 7.16% closed at 8.71% against previous day close of 8.72%. Markets traders expect bond yield to be fall to 8.50% in the coming days on expectation that Reserve Bank will purchase bonds from the market.

"We expect RBI to provide liquidity support through Rs 70,000-80,000 crore OMO purchases in H2 FY14," said Shubhada Rao economist Yes Bank.