Indian rupee ends weaker; outlook turns cloudy

The Indian rupee fell in volatile trade on Tuesday as oil importers' demand for the greenback and a negative local share market offset comfort from dollar inflows.

The rupee ended at 49.19/20 to the dollar, after rising to 48.8150. It closed at 49.05/06 on Monday, ending a four-day winning streak, after touching 48.60, its strongest since Sept. 21.

Outlook on the local currency is turning increasingly uncertain due to continuing concerns over Greece's debt problems, and the political logjam that continues to hem in local reforms as well as the persistently high inflation.

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"Flows continue to persist, but importers are not taking chances and are booking dollars as nobody wants to caught offguard if any negative news comes from the euro zone," said Vikas Chittiprolu, a senior foreign exchange with Andhra Bank.

"If the rupee breaks 49.20 convincingly, then we could see 50.10."

The rupee gained more than 7 percent in January after declining nearly 16 percent in 2011 to become one of the worst performing major Asian currencies.

"We remain somewhat skeptical about whether this (rupee)rally will sustain over the course of 1H2012," said Abheek Barua, chief economist at HDFC Bank.

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"We believe that another bout of global risk aversion could set in that could weigh on the INR," he said in a research note on Tuesday, adding the rupee could settle in band of 49.50-50.50 per dollar in April-June.

A sharper fall in the local currency may be prevented by the central bank which has been intervening intermittently in the foreign exchange market.

In addition, the RBI has also clamped down on speculation in the local currency market by slashing trading limits of banks last December. It has since then, slightly eased these restrictions for a very few banks.

For details of steps taken by the RBI to curb the rupee's volatility and increase inflows, see:

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The government's estimate that the gross domestic product in 2011/12 would grow 6.9 percent was broadly in line with market estimates, and did not have any significant impact on the currency's movement.

India's main share index ended 0.48 percent lower, while the euro was at $1.3122 at close of trading in local currency market.

Greece's major political parties need to reach agreement on new austerity measures demanded by the EU in return for a second bail-out. The deal needs to be approved by Feb. 15 if the money is to be available in time to meet a March 20 bond redemption.

One-month offshore non-deliverable forward contracts were at 49.48.

In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all ended around 49.44, on total volume of $5.45 billion.