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Tuesday January 2, 8:39 PMIndian rupee slips on short dollar covering, oil cosMUMBAI, Jan 2 (Reuters) - The Indian rupee gave up intraday gains on Tuesday as traders covered short dollar positions after liquidity improved in the banking system, while oil firms bought dollars to take advantage of stable global crude prices.The partially convertible rupee ended at 44.24/25 per dollar, slightly lower from the previous close of 44.23/44.24. It hit an early peak of 44.13, its highest since early February. The local unit weakened after banks used rupees realised from the redemption of a government deposit plan to cover short dollar positions taken last week. "There is a big correction in the offing as the market is hugely short on the dollar. We could see a weaker rupee in the coming days," said a trader at a private bank. The rupee gained last week, primarily due to a cash shortage in the money market, which had pushed up overnight call rates to nine-year highs of 21 percent. Banks were selling dollars to generate rupees to meet funding requirements. Call rates ended at 8.0-8.50 percent after inflows of 120-130 billion rupees from special deposit scheme redemptions entered the banking system. Last week's cash squeeze was prompted by the first leg of an increase in banks' cash reserve requirements, which came into effect on Dec. 23. The central bank raised the cash reserve ratio -- the amount banks have to deposit with it -- by 50 basis points last month, to be carried out in two stages. The second phase kicks off from Jan. 6. The measure will drain 135 billion rupees ($3 billion) from the banking system. Traders said heavy dollar demand from oil firms emerged towards the close. U.S. oil traded above $61 a barrel. Oil is India's biggest import and the country imports close to 70 percent of its crude requirements. A widening current account deficit may also make investors cautious on the rupee in the medium term, traders said. Data released on Friday showed the deficit widened to $6.93 billion in the July-September quarter from $4.76 billion in April-June. -------------------------------------------------------------
MARKET SNAPSHOT
Bombay Sensitive Index
Indian rupee (/$) ------------------------------------------------------------- |
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