MUMBAI: The Indian rupee retreated from four-month highs hit earlier on Monday to end flat because of sustained dollar demand from oil importers, but the government's continued push for reforms could keep the outlook positive for the local currency.
After a recent slew of reform announcements, traders are hoping for additional measures as the government looks to regain the confidence of foreign investors and avert a sovereign ratings downgrade.
India may raise the overseas borrowing limit for companies by $10 billion to $50 billion per year, The Economic Times reported on Monday, quoting a senior finance ministry official, who declined to be identified as the plans were not final, according to the newspaper.
Any such action would come after the government on Friday cut the withholding tax for overseas borrowings for local companies, which Barclays Capital estimated would lead to $2 billion of additional inflows each year and help narrow a balance of payments deficit of around $15 billion.
"The rupee gave up early gains tracking the euro and oil demand. But the outlook remains bullish with the reform sentiment positive," said Naveen Raghuvanshi, associate vice president at Development Credit Bank. Raghuvanshi expects the rupee to rise to 52.80 to the dollar in the near-term.
The partially convertible rupee ended at 53.47/48 to the dollar from its Friday close of 53.45/46.
The rupee initially rose to a session high of 53.045, its highest since May 10, on the back of heavy dollar sales from exporters and non-deliverable forward markets.
However, sustained dollar demand from oil exporters, as is typical towards the end of each moth, and the fall in the euro following disappointing German business sentiment, erased the rupee's gains.
USD/INR 1-month non-deliverable forwards were last trading at 53.67.
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 closed at around 53.48 with a total traded volume of around $7.2 billion.
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