MUMBAI: The Indian rupee fell to its weakest in three months on Monday, leading traders to brace for possible intervention from the central bank, as markets turned cautious ahead of inflation data due out at 0630 GMT.
A slump in risk currencies weighed on sentiment as well as Spain's soaring bond yields rekindled worries over the fragile state of the euro zone's economy.
The Reserve Bank of India has been active in the domestic foreign exchange market over the past months and is thought to have sold dollars as recently as last week to support the rupee.
“They (RBI) may not let the rupee slip deep into the 52 levels so easily as the last time. The fall from there to 54 was pretty fast,” said a senior foreign exchange at a private-sector bank.
Data last week showed the bank had bought $1.1 billion and sold $1.4 billion in the spot markets in February.
At 10:16 a.m. (0446 GMT), the rupee was at 51.6650 to the dollar, after hitting 51.6875, a level not seen since Jan. 16. It had closed at 51.305 on Friday marking a second consecutive week of losses.
Tehnical charts indicate some minor support for the rupee around the recent daily lows of 51.79 and 51.92, followed by stronger support at 52.12, the 61.8 percent retracement of the December-February gains.
The rupee had rebounded to 48.60 in early February, its highest so far in 2012 after plumbing to a record low of 54.30 in December 2011, according to Thomson Reuters data.
March inflation numbers are due at 0630 GMT, with a Reuters poll showed analysts expect wholesale price inflation to ease slightly to 6.70 percent.
The data will be key in setting the mood ahead of the Reserve Bank of India's policy meeting on Tuesday, with analysts widely anticipating the first cut in the repo rate in three years.
Central bank chief Duvvuri Subbarao warned on Saturday India's deficits and short-term debt levels are “disturbing,” but said the country is not facing a repeat of a 1991 balance of payment crisis.
The one-month offshore non-deliverable forward contracts were at 52.08.
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 51.83, on a total volume of $576 million.
