A deepening row with a troublesome coalition partner has raised the prospect that prime minister Atal Behari Vajpayee could face a confidence vote if the ally withdraws support.

A treasury head at a state-run bank said political developments could cause a slight flutter in the markets, but he believed the central bank would keep the rupee safe.

"Volatility, if at all, will be temporary," he said.

The central bank has kept a stranglehold on speculation since last August, and daily turnover in spot dollar/rupee has been running at a paltry $100 million to $200 million recently.

The rupee remained stable on its reopen on Monday after a long weekend. Banks were closed on Thursday for annual book-closure and the next day for Good Friday.

A few dollar bids were seen in early trade, but the rupee settled into a familiar stable range at around42.43/44 per dollar, against its close last Wednesday at 42.43/4325.

The Reserve Bank of India (RBI), according to an industry association at the weekend, appeared to douse hopes that the central bank would follow up last month's interest rate cut with further reductions in the near term.

"Bimal Jalan, governor, RBI today ruled out a possibility of any further cut in the interest rates at this juncture, saying that the whole issue was interlinked with the deposit rates prevailing in the country," the PHD Chamber of Commerce and Industry (Phdcci) said in a statement after Jalan addressed it on Saturday.

The central bank would be shaping its half-yearly credit policy, due to be presented in the next few weeks, with a weather eye on the political storm in Delhi.

The All India Anna Dravida Munnetra Kazagham (AIADMK) led by Jayaram Jayalalitha on Saturday threatened to withdraw support if Vajpayee did not meet its demands, which included the replacement of defence minister George Fernandes.

Vajpayee onSunday rejected Jayalalitha's demands and said his government was ready to face a confidence test if needed.

"These threats have happened before. She has threatened in the past, only to make up at the last moment," the chief dealer at an American bank told Reuters.

"Even if she does withdraw support, a big movement is unlikely. We will not see a 50 paise (0.50 rupee) move in a day. At best it could be around 20-30 paise."

Said the treasurer of a European bank: "It's just sabre-rattling. Nothing will happen to the rupee."

The rupee has largely traded in a narrow band around 42.50 since it recovered from its record low of 43.70 on August 20, after the central bank imposed curbs on speculation.

"They (the authorities) may allow a gradual depreciation to boost exports after last week's EXIM policy," the State Bank chief dealer said.

Bankers say the RBI has prevented the rupee from appreciating by mopping up dollar supplies, which has helped the country's foreign exchange reserves rise by nearly abillion dollars in the last month to $31.586 billion as of March 26.

That strength largely resulted from an inflow of foreign investment to Indian stock markets after a well-received budget and deferred purchases of oil imports.