The Indian rupee ended weaker on Tuesday as the central bank left short-term interest rates steady and dealers noted increased demand for dollars from domestic oil firms against the backdrop of a spurt in global crude prices.
But capital inflows lent support to the rupee as proceeds from the Reliance Petroleum public share issue came in while foreign funds lapped up Indian shares in the secondary market.
The inflow has cushioned the rupee from rising oil prices and a widening trade deficit, which some analysts estimate stood at a record $50 billion at the end of March.
The partially convertible rupee, which began trading on a firmer footing, weakened over the day and closed at 45.175/185 a dollar, compared to Monday's close of 45.1225/1325.
"There was some nervousness in the market after global oil prices touched $72 a barrel during the day. There was heavy demand for dollars from domestic oil firms and corporates," a dealer said.
Oil is India's biggest import and a report from the central bank on Monday noted that while oil prices had been a key driver of inflation in 2005/06, domestic fuel prices still lagged international price rises.