By Aditya Phatak
MUMBAI (Reuters) - The rupee ended stronger on Wednesday as robust capital inflows offset dollar demand from local oil importers and negative equities, and the outlook for the currency remains positive.
Dollar inflows into India are expected to stay strong and easing inflation is seen creating more room for the Reserve Bank of India to cut interest rates, traders said.
"Improvement in growth outlook for FY13 will provide support to rupee and hence we expect it to trade around 46 levels by December 2012," said Shubhada M. Rao, chief economist for YES Bank, in a note.
The rupee ended 0.2 percent stronger at 49.22/23 to the dollar. It moved in a band of 49.1650-49.3050 intraday.
The Indian unit has rebounded nearly 8 percent so far in 2012 after last year's 16 percent slide. It touched a record low of 54.30 versus the dollar on December 15.
India's economy is expected to pick up in the fiscal year starting on April 1 after growing at its slowest pace in three years in the current fiscal year, a government advisory panel said on Wednesday.
Foreign funds have invested over $8 billion in Indian stocks and debt since the start of January, according to the Securities and Exchange Board of India.
"The base expectation is that rupee should move towards 48.60. But genuine demand from importers is preventing any convincing break past the 49.20 level as dollar bids seem to pour in around those levels," said Ashish Barua, a senior forex dealer with IndusInd Bank.
Traders said domestic oil refiners have increased their dollar purchases over the past few days in a move to settle outstanding payments to Iran earlier amid Western sanctions.
India, which imports about 80 percent of its total oil requirement, is pushing local refiners to reduce oil imports from Iran by at least 10 percent for 2012/13. New Delhi imports about 12 percent of its oil needs from Tehran.
Weaker-than-expected euro zone service sector data raised concerns about a possible recession in the region, pushing the euro and equities lower and, in turn, weighing on the rupee.
The euro is closely watched by traders for cues on global risk appetite and foreign fund flows, and a fall in the single currency usually puts selling pressure on the rupee.
One-month offshore non-deliverable forward contracts were at 49.64.
In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange ended at 49.2825, the MCX-SX at 48.2925 and the United Stock Exchange at 49.2900, on a total volume of $3.9 billion.
