The rupee ended at 43.770/785 per dollar, weaker than Wednesdays close of 43.04/06. It was the biggest percentage drop since May 14, 1998, when it had dropped 1.9%, Reuters data showed. The rupee has gained about 7.5% since hitting a three-year low last July. It touched a peak of 43.01 during trade on Wednesday, its highest level since November 1999, according to Reuters data. The central bank aggressively sold rupees between 43.30-50, which suggests the rally is over, said a dealer with a private bank.
Everyone was expecting a correction to happen, though its speed was a little surprising, added the dealer. Traders also said a shift in the settlement date for three-day forward contracts struck on Wednesday due to the end of the fiscal year was another reason behind the fall. The fiscal year ends on March 31.
The premium was built into todays rate as there is no settlement of currency deals on April 2 because of year-end account closing for banks, a foreign bank trader said. Call money rates traded at 10%-11% on Thursday. They touched a decade high of 70 percent last week, as banks faced an acute cash crunch following advance tax outflows of about $6.8 billion.
Standard Chartered said that while the rupees near-term strength may persist, it would fall to 45.50 by the end of June. The excessive strength in the rupee has been caused by a liquidity squeeze... as government expenditure seeps back into the system, liquidity is unlikely to tighten much further, it said in a note on Thursday.