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Rupee sinks to new closing low of 48.79/$

The rupee ended at a new closing low on Monday for the second successive trading session, driven down by the view that the Reserve Bank of India was guiding the currency lower in order to maintain its value on a trade-weighted basis, dealers said.

The rupee ended at 48.7875/7975 per dollar, off a new intra-day low of 48.8850 hit in early deals, and weaker than the previous record close of 48.7450/7600 hit on Friday. Its previous intra-day low was 48.7650 struck on February 7.

At its lowest, the rupee has lost 0.5 per cent since last Wednesday, when it struck a 16-day closing high of 48.61/62.

The currency has been falling since Thursday, largely inspired by the Reserve Bank of India, which is trying to correct an overvaluation on a trade-weighted basis, traders said.

After Monday's fall the rupee is still overvalued by more than one per cent against a basket of major currencies of India's top trading partners, analysts said.

Traders said robust weekend inflows, dollar sales by banks offering custodial services to foreign funds, remittances by exporters and thin purchases by importers helped the rupee recover from its intra-day low.

Towards the close of trade, dollar unwinding by some banks which had built positions earlier in the day expecting demand from importers, also helped the rupee.

Forwards also edged up on concerns about the pace of reforms after the ruling coalition's main Bharatiya Janata Party was defeated in the politically crucial state of Uttar Pradesh.

Traders said the electoral setback raised the chances of reforms -- like pruning the yawning fiscal deficit -- being put on the backburner, prompting international rating agencies to downgrade the country's sovereign rating.

Reuters

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