Rupee falls below 63 to over two-month low

Mumbai: The rupee fell for a third consecutive session on Monday to its lowest against the dollar since mid-November as a broad emerging market sell-off raised worries foreign investors would pare down their domestic stock and bond holdings.

The Reserve Bank of India's policy review on Tuesday also kept investors cautious. Although the central bank is expected to keep interest rates on hold, the tone of the statement is being closely eyed, raising expectations of tighter monetary policy this year.

Although rate hikes would normally benefit currencies by increasing domestic yields, investors also worry that confidence in an already slowing economy would be further hit.

Foreign institutional investors sold shares worth $31.45 million on Friday, but are net buyers of $532 million so far this year, still just a fraction of the more than $20 billion inflows seen in 2013.

"Until the policy review decision, 63.25 should hold the top for the pair," said Naveen Raghuvanshi, a senior foreign exchange dealer with DCB Bank.

"If there is no change, we could possibly see a relief rally, while a rate hike may see the rupee fall in a knee-jerk reaction tracking stocks, but it will eventually recover," he added.

The partially convertible rupee closed at 63.10/11 per dollar compared with 62.66/67 on Friday, after falling to 63.32 earlier, its lowest since November 14.

The rupee was seen further pressured by month-end import payment related purchases of dollars by oil firms.

Unlike on Friday, when the central bank was suspected to have stepped in to sell dollars, no consensus emerged as to whether the RBI had intervened on Monday.

Almost all emerging Asian currencies tumbled on Monday on the back of the global sell-off of riskier assets.

The BSE Sensex slumped more than 2 percent, their biggest daily fall since September 3, tracking a regional selloff as the U.S. Federal Reserve is poised to continue tapering stimulus and tighter credit conditions in China are raising fears of a sharper economic slowdown.

In the offshore non-deliverable forwards, the one-month contract was at 63.72 while the three-month was at 64.62.