Mumbai: After a brief recovery, rupee fell back sharply to end at 62.16 against the American currency - a fall of 33 paise during the holiday shortened week on the back of good dollar demand from banks and importers.
Highly volatile equities along with extremely strong greenback which climbed to hit a fresh 11-1/2 year high against a trade-weighted basket of six major currencies predominantly pressurised the rupee to depreciate.
Reacting to the Budget outcome, the local unit resumed lower at 61.90 as against the weekend's level of 61.83 per dollar at the Interbank Foreign Exchange (Forex) market amid concerns after the government set a higher-than-expected fiscal deficit target for the 2015-16 year.
The domestic currency, however staged a smart rebound during the trade and reclaimed its one-month high level of 61.67 per dollar briefly buoyed by a surprise rate cut by RBI amid central bank intervention.
The RBI lowered its key policy repo rate by 25 basis points to 7.5 percent, its second inter-meeting cut this year citing easing inflationary pressure and steps taken by the government to revive growth, in a move that came earlier than expected.
Strong capital inflows and dollar selling by export houses and trading participants also aided the rupee sentiment.
However, it suffered a major setback following renewed dollar demand from state-owned banks and a sharp plunge in the local stock market.
Moreover, sluggish core industries data and fiscal deficit in April-January period breaching the budget estimate, further dampened sentiment.
After registering an intra-week low of 62.34 per dollar, rupee finally settled at 62.16 per dollar, disclosing a fall of 33 paise, or 0.53 percent from its last weekend's level.
The rupee had gained by 39 paise or 0.63 percent in the previous week.
"The rupee also depreciated after comments from the RBI Governor that an excessively strong rupee is undesirable. This was contrasting to the statement made in the February meeting that the central bank was perfectly comfortable with the exchange rate," said Admisi Forex, Director, Suresh Nair.
Meanwhile, the government and the RBI signed an agreement on Monetary Policy Framework to focus on flexible inflation targeting.
The new framework makes the apex bank more accountable and will have to explain to government if it fails to meet the inflation target.
Forward dollar premium dropped owing to sustained receiving by exporters.
The benchmark six-month forward dollar premium payable in August declined to 231-233 paise from the preceding weekend's level of 243-245 paise and far-forward contract maturing in February 2016 also moved down to 448.50-450.5 paise as compared to 455-457 paise.
The RBI fixed the reference rate for the US dollar at 62.2015 and Euro at 68.6020 from last weekend level of 61.7908 and 69.2860, respectively.
Meanwhile, the rupee remained strong against the pound sterling to end at 94.72 from last Friday's level of 95.34 and strengthened to finish 68.67 per euro compared to 69.47.
It also moved up further against the Japanese currency to settle at 51.74 per 100 yen from 51.82 previously.
