MUMBAI: The Indian rupee drifted lower on Monday in tandem with subdued shares and perked up demand for dollars from oil importers, after the currency had climbed 2 percent last week snapping a four-week slide.
Traders said the near-term outlook was bearish even after the central bank pledged to support the rupee, which had hit a record low last month.
"The fall in euro and shares is having its effect. Supply of dollars seems to be also low currently, but rupee should hold around 51.50-51.55," said Ashtosh Raina, head of foreign exchange trading at HDFC Bank.
At 11:35 a.m. (0605 GMT), the partially convertible rupee was 0.4 percent weaker at 51.42/43 per dollar after strengthening to 51.20/21 on Friday.
The main share index was down more than 0.9 percent after rallying 7.3 percent last week.
Shares in retailers were among the losers after the ruling Congress party appeared to have put on hold plans to open up the country's $450 billion retail industry to foreign supermarkets.
The one-month offshore non-deliverable forward contracts were quoted at 51.73, indicating a bearish near-term outlook.
The one-month onshore forward dollar premium was at 27.25 points from 28.50 on Friday, the three-month was at 67 points from 67.25 points, and the one-year premium was at 199 points, from 198.50.
The euro was trading at $1.3405 versus $1.35 when the rupee closed on Friday, and the index of the dollar against six major currencies was at 78.606 points from 78.158 points.
Traders said the central bank deputy governor Subir Gokarn's comments on Saturday to support the rupee would help calm nerves after the currency had touched a record low of 52.73 on Nov. 22 and had lost 6.7 percent last month.
"People are going to be cautious after Saturday's comments. Nobody would want to play too aggressively against the central bank," said a senior foreign exchange dealer with a private-sector bank.
Gokarn, who oversees monetary policy at the central bank, had said the bank would use all available tools to stem a fall in the rupee if the currency's downward spiral escalates.
The rupee is the worst performer among major Asian peers against the greenback so far this year, weighed down by a widening trade deficit, slowing domestic growth and sluggish foreign portfolio investment.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, the United Stock Exchange and the MCX-SX were all at 51.65. The total volume was at $1.11 billion.
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