Mumbai, September 15: The rupee pared early gains to settle 16 paise lower at 73.64 against the US dollar on Tuesday due to dollar buying by banks and oil importers.
The rupee had opened higher at 73.33 but later lost ground to touch a low of 73.72 due to high dollar demand.
Forex traders said the rupee ended lower due to dollar purchases by state-run banks likely on the behalf of the RBI. The central bank has turned a dollar buyer to offset the impact of portfolio inflows, they added.
The rupee moved between 73.33 and 73.72 in the day trade before closing at 73.64. The rupee had closed at 73.48 on Monday.
The rupee ended lower on likely intervention by the Reserve Bank of India (RBI) followed by dollar buying by oil importers, Jateen Trivedi, Senior Research Analyst (Commodity & Currency) at LKP Securities said.
"RBI is trying to maintain Rs 73.40-73.50/$1 level. Nationalised banks were on buy side as well. Going ahead 73.90-74.10 looks on cards," Trivedi added.
According to Sriram Iyer, Senior Research Analyst at Reliance Securities, the Indian rupee depreciated against the US currency as state-run banks' dollar purchases, likely on behalf of the central bank, outweighed the impact of a yuan-led advance in Asian currencies and portfolio flows into the country.
The dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.16 per cent to 92.90.
Domestic stock markets ended with gains on Tuesday. The 30-share BSE Sensex overcame bouts of volatility to end 287.72 points or 0.74 per cent higher at 39,044.35. The broader NSE Nifty rose 81.75 points or 0.71 per cent to finish at 11,521.80.
Foreign institutional investors were net buyers in the capital market as they purchased shares worth Rs 298.22 crore on a net basis on Monday, according to exchange data.
Brent crude futures, the global oil benchmark, rose 0.28 per cent to USD 39.72 per barrel.
The domestic unit was the worst performer among Asian peers amid expected dollar buying by the central bank and some fund outflows from primary markets, Devarsh Vakil, Deputy Head Retail Research, HDFC Securities said.
Market participants were also concerned about higher inflation and slower growth of the Indian economy, he said.
Meanwhile, retail inflation softened slightly to 6.69 per cent in August as price rise in some food items eased.
"Retail inflation rose 6.7 per cent last month, exceeding RBI's upper limit of 6 per cent for a fifth consecutive month. That is suggesting central bank's easing cycle may be in a pause mode for a while," Vakil said.
Traders now await the Federal Reserve's decision at the end of its two-day policy review on Wednesday, Iyer said.