Opening at 40.54/56, unchanged from its previous close, the rupee fell to 40.68 by mid-session. Month-end demand coupled with expectations of harsh measures for importers in the budget saw the rupee fall to a low of 40.68. It later recovered to trade at 40.61/63.

At the end of the day, it fell again on dollar-demand to close at 40.65/67. The Reserve Bank of India fixed its reference rate for the dollar at 40.63, as against the previous fix of 40.53.

On May 15, the Indian rupee had closed at 40.55/60 against the backdrop of the US sanctions in the wake of a series of nuclear tests conducted on May 11 and 13.

The rupee had touched a record intra-day low of 40.77 on May 12 -- a day after India conducted the first three of the five nuclear tests after a gap of 24 years. "The rupee fell because of demand from importers, especiallya large private-sector petrochemical giant," a dealer with a private-sector bank said. Dealers said that Reliance Industries was reportedly buying dollars to cover its import positions. Corporates are buying dollars as they expect a harsh budget.

"Importers are of the view that import duties are likely to be hiked. So they are covering their positions," a dealer in a foreign bank said.

The State Bank of India traded in small amounts, dealers said. The six-month annualised forward cover remained steady at 8.30 per cent, marginally higher than the previous close of 8.25 per cent. The premiums rose by 5 paise initially as the spot rupee hit a new low.

"There was paying pressure from importers when the spot rupee weakened," a dealer in a private bank said. The forward premiums, however, fell by 10 paise as exporters entered with dollars. "They brought in enough dollars to take care of the supply," a dealer said. The fall in the premiums was accompanied by a similar rise in the spot rupee.