The Indian rupee fell to its lowest in over a week on Friday after heavy dollar buying by a large state-run bank wiped out all gains even as a below expected inflation reading raised hopes that the central bank could start cutting interest rates as early as January. The dollar buying by the large-bank was likely related to government defence purchases, several dealers said.

"The trending and expectation in headline inflation has improved, paving way for start of rate cut cycle in January-March 2013," said Moses Harding, head of asset liability management at IndusInd Bank. The partially convertible rupee ended at 54.4850/4950 per dollar, marginally weaker than its Thursday close of 54.46/47. It fell to 54.70 in the session, its lowest level since December 4. In the offshore non-deliverable forwards, the one-month contract was at 54.74, while the three-month was at 55.26. In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed at around 54.58, with total traded volume of $6.4 billion.

Copyright Reuters, 2012