Rupee falls as importers pile pressure Close.

MUMBAI: The rupee fell on Thursday as importers, most likely gold traders, bought dollars eyeing the U.S. currency's overnight gains and fearing more pressure if the central bank cuts rates in its policy review at 0530 GMT.

The Reserve Bank of India (RBI) is likely to hold rates, most economists polled by Reuters this week said, but it could ease policy after manufacturing inflation showed signs of easing. .

At 10:23 a.m. (0453 GMT), the rupee was at 50.15/16 to the dollar, 0.5 percent weaker than Wednesday's close of 49.91/92.

"A rate cut does induce a knee-jerk reaction of dollar buying and rupee selling. And it looks like traders are positioning for this move," said a senior foreign exchange trader at a private sector bank.

However, the selling is expected to be short-lived as over the long term a fall in interest rates supports economic growth, boosts equities and attracts capital inflows.

Foreign funds have poured nearly $13 billion into local stocks and debt so far in 2012, an indication of the bullish outlook on India.

Traders are also awaiting the federal budget on Friday to see whether the government can bring fiscal deficit under control while supporting the flagging growth and pushing reforms.

The central bank could intervene to halt a further drop in the rupee, traders said. The RBI has been actively intervening in the currency markets over the past few months to support the rupee, which touched a record low of 54.30 on Dec. 15.

Data released by the RBI this week showed the bank sold a net $7.3 billion in the spot market in January, after sales of $7.8 billion in December.

The one-month offshore non-deliverable forward contracts were at 50.58. In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and on the United Stock Exchange were all around 50.30, on a total volume of $795 million.

The dollar hit a fresh 11-month high against the yen and a one-month peak against the euro in Asia, supported by growing optimism on the U.S. economic recovery and subsequent rises in U.S. bond yields.

Source : economictimes.indiatimes.com