The rupee dropped for the first time in five days on speculation that importers bought dollars to meet month-end payments.
Costlier crude oil is forcing refiners to obtain more US currency in the foreign exchange market. The fuel traded at $77.46 a barrel recently in New York, 74% higher than at the end of last year.
?Demand from importers is strengthening and pressuring the rupee down,? said Vikas Babu of the state-owned Andhra Bank. ?This trend may persist for few days.?
The rupee fell 0.5% to 46.45 per dollar at the close.
Offshore contracts indicate the rupee will trade at 46.59 to the dollar in a month, compared with expectations for a rate of 46.25 on Wednesday.
The liquidity condition was easy and the money market rates remained soft. The overnight call rate was seen in the range of 3.15-3.3%. The amount absorbed under LAF reverse repo operation was noted at Rs 96,400 crore.
The current benchmark 6.9%, 2019 gilt gave up most of its intraday gains to end at 7.1676% yield compared to 7.1897% on Wednesday.
Investors see further upside in bond prices going forward due to the surplus liquidity and low credit growth.
?There is enough liquidity in the system and plus deposits are growing, but credit is not. So the natural investment for excess money is gilts,? said a senior treasury official at another state-owned bank.