MUMBAI, Jan 2 Reuters The heavy demand for the U.S. dollar in the nondeliverable forward NDF market had widened the arbitrage with the Indian onshore market, putting more strain on the rupee and sending it just shy of another lifetime low, traders said on Thursday.

The rupee declined to 85.7900 per U.S. dollar, not far off the alltime low of 85.8075 hit last Friday. It opened on a weaker note, at 85.7025, and has been under pressure since.

The rupee hit record lows regularly in December due to the runup in the dollar index and U.S. Treasuries. The dip in India39;s growth rate, a wider trade deficit and a slowdown in capital inflows have compounded its woes.

Amid this, speculators have been lapping up the dollar in the NDF market visàvis the rupee, which has spurred arbitrage opportunities with the onshore overthecounter OTC markets.

For instance, the onemonth dollarrupee NDF rate on Thursday was 46 paisa higher than the onshore OTC rate, per traders.

It39;s not only the 1month, there is good arbitrage across maturities, said the head of FX and rates trading at a private sector bank, while pointing out that the difference between the two rates had widened on Thursday.

With the New Year kicking off, it would seem new money is going to work in the NDF market.

To exploit the arbitrage, market participants buy dollarrupee in the onshore OTC which raises the pair39;s value in that market and sell it in the NDF market.

Unless we see a major change in the outlook of…