The rupee fell for a second day on Wednesday, as the dollar rose overseas and banks stepped up purchases of the US currency to gain arbitrage from a costlier dollar in the offshore non-deliverable forwards (NDF) market.
The partly convertible Indian rupee slid 0.10 percent to close at 43.5675/5725 per dollar.
"The 10-15 paise arbitrage that one stood to gain on the one-month NDF was a major factor that drove dollar buying today," a treasury head at a European bank said.
"Including the premium, they bought the one-month dollar for about 43.65 and with the one-month NDF fetching about 43.75 to 43.80 they had a good clean arbitrage to gain."
Foreign banks and foreign fund investors often seek to capitalise on arbitrage from the difference in the rupee's value in the domestic forwards market and the offshore market.
Robust foreign fund purchases of shares have remained a major source of support for the rupee, which has gained nearly 0.5 percent against the dollar since the start of June, despite the US currency's broad gains overseas.
Overseas funds have bought a net $946.8 million of Indian stocks so far in June and the spread of the monsoon rains across three-fourths of the country is seen boosting growth prospects in Asia's fourth-largest economy, attracting more investment.
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