The rupee ended the day at 45.78/79, some 0.6 per cent higher than the all-time low struck before the central bank gave exporters instructions to halve their foreign currency balances.

It has weakened around 5 per cent since January.

Last Monday, the central bank asked exporters to halve the balances held in foreign currency accounts and convert the excess into rupees by August 23. It estimated that the aggregate amount outstanding in these accounts was around $2 billion.

"We should see the rupee in a range of 45.70 - 45.90 per dollar over the next few days; for the moment the market's appetite for dollars has been satiated," said Bank of America's head of foreign exchange trading, Alok Sharma. But he said the rupee was likely to continue weakening in the short-term due to renewed importer demand.

Analysts' estimates of the net foreign currency inflows following the RBI instruction varied between $200 - $400 million, well below a potential $1 billion.

The net inflows were lower-than-expected because exporters who sold their dollars in the spot market booked forward dollars for their future import requirements, analysts said.

Before the exporter directive the central bank also tried direct monetary measures to protect the rupee, which is convertible only on the current account.

Last month, the RBI hiked interest rates and tightened liquidity in the domestic money market in an effort to discourage dollar positions against the rupee.

It raised the bank rate by 100 basis points to 8 per cent, raised bank's cash reserve requirements by 50 basis points to 8.5 per cent and halved their refinance facilities on July 21.

"Hiking interest rates is not the solution, the central bank has to look at the angle of bridging the demand supply gap," said Centurion Bank's head of treasury, Moses Harding.

The gap has been widened because a higher oil import bill has raised demand for dollars, while a slowdown in foreign investments has restricted supply.Analysts said India's net import bill in 2000 / 2001 (April-March) could jump to $16 billion from $12.3 billion in the previous year if the current firm trend in global crude prices, which recently hit a 10-year high, continues.

Foreign portfolio investors have turned net buyers in Aug after being net sellers in June and July, but analysts said investment was in a few key stocks and did not indicate any broad shift in strategy.

Some analysts said there were expectations of a pick-up in foreign direct investment following liberalisation of the insurance and telecom sectors.

The government recently announced the end of a state monopoly in long-distance telephony, an area which foreign investors are likely be interested in, and the country's insurance regulator has begun accepting bids from new entrants into the sector.