Reports that RBI Governor Raghuram Rajan may not want to continue at the helm of the central bank even if given an extension, coupled with demand for dollars from oil companies proved to be a drag on the rupee on Wednesday.

The Indian unit closed 19 paise weaker at 67.45 to the dollar against the previous close of 67.26. Rajan’s three-year tenure as RBI chief comes to an end in September. Reports suggest that the Governor has expressed his desire to return to the US to pursue his academic interests upon completion of his tenure.

Subramanian Swamy, the newly-nominated BJP MP in the Rajya Sabha, has been critical of Rajan, blaming him for the collapse of industry and rise of unemployment in the economy.

The mercurial BJP leader has alleged that the RBI Governor has hiked interest rates in the garb of controlling inflation, which has damaged the country. Swamy has written to the government demanding that either it immediately remove Rajan or not grant him an extension.

Rajan, however, seems to enjoy the support of Prime Minister Narendra Modi and Finance Minister Arun Jaitley. According to a Reuters report, with Prime Minister Narendra Modi's patronage, it is more likely the government will reappoint Rajan, should he wish to stay on. That would allow him to try to revive India’s banking sector that has been smothered by distressed debt, which, in turn, is choking off economic recovery. The rupee opened a tad stronger at 67.22 on dollar inflows and touched an intra-day high of 67.11. However, reports of the RBI Governor possibly not taking up an extension offer and demand from oil companies weakened the rupee, which tested an intra-day low of 67.46.

“The Rajan news had a negative impact on the rupee. Then the possibility of the US Fed hiking interest rates sooner than later and the outflows on account of maturing FCNR(B) deposits also weighed on the rupee,” said a public sector bank dealer.

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