The Indian rupee clawed back early losses to end flat on Friday as a rally in the stock market spurred investors to sell dollars at higher levels on expectations of renewed capital inflows. The partially convertible rupee ended at 47.65/66 per dollar, virtually unchanged from Thursday's close of 47.66/69. It was stuck in a narrow 47.65-47.95 band all day.
For the week, the local unit ended up 3.8 percent, and has now recovered more than 5 percent from a record low of 50.29 hit last week. "The market was expecting the rupee to stay weak and the stock market to fall, but once stocks recovered, the rupee regained most of its losses," said R.A. Sankaranarayanan, chief of trading at state-owned Bank of India in Mumbai.
"But there is good dollar demand from companies at lower levels and the rupee should stay in a broad 47-48.50 range for the next ten days," Sankaranarayanan said. The central bank said on Friday it would provide foreign exchange liquidity to foreign branches and subsidiaries of Indian banks through forex swaps of up to three-month tenor.
Sonal Varma, an economist at Nomura, expects the balance of payments to slip into deficit in 2008/09 for the first time in 13 years, and policymakers must ensure sufficient dollar liquidity for the smooth rollover of short-term residual debt.
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