The Indian unit fell to an intraday low of 53.74 rupees to the dollar — a level last seen in December — but then recovered marginally to 52.89.
“The rupee is in a challenging environment, the headwinds are too strong. It is unlikely to appreciate in a hurry,” said Sonam Udasi, head of research at IDBI Capital.
The partially convertible currency has been hurt by global uncertainty, weak domestic economic data, slowing overseas funds inflows and pressure from oil importers who have to exchange rupees for dollars when they purchase crude.
Energy-hungry India imports four-fifths of its crude oil needs to fuel its economy.
“The RBI (Reserve Bank of India) likely intervened” to lift the currency of its intraday lows, a dealer with a Mumbai-based brokerage said, declining to be named.
The RBI typically intervenes — by buying rupees — to prevent volatility and has a policy of not commenting on movements of the forex market.
Traders said it was the eleventh time in 2012 that the central bank is believed to have stepped into the market to prop up the rupee.
The currency was also boosted by news that India’s government had deferred by a year plans for a proposal which aims to crack down on tax evasion, which had caused concern among foreign investors.
The “general anti-avoidance rule”, or GAAR, was intended to stop foreign companies evading capital gains tax by routing investments through popular tax havens such as Mauritius.
The Indian unit, Asia’s worst performing currency in 2011, hit a record low of 54.30 against the dollar in mid-December and then rebounded to 48.67 rupees in February, led by strong foreign fund buying of Indian assets.
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