Indian Rupee to Fall on Current-Account Deficit, ABN Amro Says

By Anoop Agrawal

July 3 (Bloomberg) -- India's rupee will decline to a 16- month low as rising crude oil prices and increased sales of local assets by global investors widen the shortfall in the nation's current account, ABN Amro Bank NV said.

The broad measure of trade that includes investment flows will widen through the second and third quarters, weakening the rupee by 2.1 percent to 44.1 per dollar, said Irene Cheung, a strategist at ABN. The rupee, which completed its worst quarter in a decade on June 30, is the third-biggest decliner this year among the 10-most traded Asian currencies excluding the yen.

``The natural forces are not supporting the rupee at all,'' Singapore-based Cheung said in an interview yesterday. ``The pressure points on the rupee are more in the near term than in the long term. So, the dollar will be overbought and the undertone will be weak for the rupee.''

The rupee closed at 43.1738 per dollar yesterday in Mumbai, according to data compiled by Bloomberg. It touched a 15-month low of 43.4750 on July 1.

ABN predicts the rupee will fall to 44.10 in coming months and is revising its year-end forecast, Cheung said.

India's current-account deficit narrowed to $1.04 billion in the three months ended March 31 from $5.1 billion in the previous quarter, the central bank said June 30. The shortfall will widen in the quarter ending June 30 and Sept. 30, Cheung said without providing forecasts.

The trade deficit widened to a record $10.8 billion in May after crude oil prices advanced more than 47 percent this year. Asia's third-largest economy imports three-quarters of its annual oil needs.

Oil Imports

Crude oil for August delivery rose as much as 0.6 percent, to $144.36 a barrel in after-hours electronic trading on the New York Mercantile Exchange. President of the Organization of Petroleum Exporting Countries Chakib Khelil on June 28 said oil will climb to $170 a barrel before the end of the year.

The rupee may also fall as money managers abroad reduce holdings of the nation's assets, Cheung said.

The benchmark Bombay Stock Exchange Sensitive Index, or Sensex, has lost 32 percent in 2008, following a 47 percent advance last year.

Money managers abroad have sold $6.5 billion more Indian shares than they bought this year, more than a third of their record net purchases of $17.2 billion in 2007, data provided by the Securities & Exchange Board of India show.

``There is still a lot of money in India and the risk is that more money will flow out this year,'' Cheung said. ``Only a small portion of it has gone out and we will see outflows increase.''

To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net.