The Indian rupee pulled off its 2006 low on Monday and erased nearly all its losses against the US dollar on the back of suspected central bank intervention and a partial recovery in India's stock market.
The partially convertible rupee ended at 45.55/57 to a dollar, off the day's low of 45.82, its weakest in 2006. It ended at 45.5550/5650 on Friday.
Dealers said state-owned banks sold dollars, probably on behalf of the Reserve Bank of India (RBI), at various points in the day including below 45.60.
"It seems that the central bank is alert about movement in the rupee related to the stock market. They are more comfortable if the swings are on account of demand-supply factors," said a dealer with a private bank.
The rupee weakened after the benchmark share index fell by 10 percent, forcing authorities to suspend trading for an hour. The index later erased some of the losses to close 4 percent lower.
Dealers are worried that falling shares may slow fresh portfolio investments by foreign investors and weaken the rupee further.
The central bank said it was in touch with major settlement banks and stock exchanges to ensure that payment obligations on the bourses were met smoothly.
"The central bank's statement soothed sentiments in the foreign exchange market to some extent," said a dealer with a foreign bank.
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