Rupee dropped on Thursday as concerns about more capital outflows from local stocks continued to grip market participants, with a rise in global crude prices also pushing up dollar demand from refiners.
At 10 a.m., the partially convertible rupee was at 46.65/67 per dollar, 0.7 percent weaker than 46.33/35 at close on Wednesday. On Tuesday, the rupee fell to 46.99, its lowest since July 2006.
"Regional stocks are negative and oil has gone up, so sentiment is bearish. But the Reserve Bank of India (RBI) is expected to step in around 46.70-75, so corporates and exporters start selling around those levels," a dealer with a private bank said.
The RBI said in a statement on Tuesday it would continue to sell dollars in the market either directly or through state-run banks to augment supply.
The BSE Sensex fell 5 percent in early trade, sliding for the eighth session in a row, with emergency actions by central banks and governments around the world failing to ease a financial crisis.
Foreign institutional investors have dumped a net $8.7 billion worth of Indian stocks in 2008, with $1.3 billion so far in September. This has pushed the rupee down 15.5 percent this year.
Dealers said oil firms were seen buying dollars in the market, in an effort to cover their monthly imports, after oil prices started rising again.
Oil , India's biggest import, was trading around $97 per barrel after having surged $6 a day earlier after a fall in weekly U.S. crude stocks.
One-month offshore non-deliverable forward contracts were quoting at 47.03/13, much weaker than the onshore spot rate, providing a good arbitrage opportunity for banks and further weakening the rupee in the local market.
Banks buy dollars in the local market where it is cheaper and sell it offshore, to take advantage of the high price differential.
