Rupee ends at 13-month low

15 May, 2008, 1934 hrs IST, REUTERS

MUMBAI: The rupee erased early gains on Thursday and fell to 13-month lows on arbitrage trading by banks toward the close, and could cloud the near-term outlook for the unit.

Traders said banks sold rupees in the local market to buy the currency cheaper in the overseas non-deliverable forward (NDF) market, where participants were bearish on the rupee's prospects.

The partially convertible rupee ended at 42.75/76 per dollar, the weakest since April 13, 2007, according to Reuters data and about 0.7 percent lower than Wednesday's close of 42.45/46. It had climbed in early trade, rising as high as 42.30, on the back of a stocks rally that lifted the BSE share index 2.2 percent to its highest close in a week.

"We saw a bout of arbitrage between the local and NDF market in the last minutes of trade," a trader with a private bank said. Offshore spot rates traded at 42.73/76 at the close of trade. The rupee has eased 7.8 percent in 2008, a sharp turnaround from its 12 percent-plus rise last year.

Stubbornly high oil prices also weighed on sentiment. Oil, India's biggest import, traded above $125 a barrel, after touching a record $126.98 earlier this week.

Oil refiners are the biggest buyers of dollars in Indian markets, and rising oil prices increase their demand for dollars and also put pressure on the trade deficit. The country's oil import bill shot up by more than a third in 2007/08.