India’s Rupee Drops Most in Six Weeks on Imports, Stock Losses

By Anil Varma

Dec. 22 (Bloomberg) -- India’s rupee fell the most in six weeks as some importers took advantage of the currency’s rally to a 2 1/2-month high to buy cheaper dollars.

The rupee weakened a second day as importers probably stepped up dollar purchases after the local currency gained 2.7 percent last week, the most since the five-day period ended Nov. 7. A drop in Asian stocks and currencies today added to speculation overseas funds are scaling back purchases of regional assets, trimming the rupee’s gains.

“Some sizeable import payment outflows, said to be defense-related, have brought the rupee down today,” said Sudarshan Bhatt, head of currency trading at state-owned Corporation Bank in Mumbai. “The negative trend in the stock market has added downward pressure on the rupee.”

The local currency declined 1.6 percent to 48.02 per dollar at the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. The currency may fall to 48.20 in the coming days, Bhatt said.

The rupee touched 46.86 in intraday trading on Dec. 19, the highest since Oct. 3, rebounding more than 8 percent from a record low of 50.615 reached on Dec. 2. The currency’s 17.8 percent loss this year is its biggest since 1991.

The South Asian nation’s import payments have risen an average 37.2 percent this year, compared with 24.5 percent in 2007, government data show.

Shares Decline

India’s benchmark Bombay Stock Exchange Sensitive Index lost 1.7 percent today, snapping a two-day advance. The MSCI Asia Pacific Index fell 0.6 percent.

Overseas funds sold more Indian shares than they bought on Dec. 17 and Dec. 18, according to the latest data released by the Securities and Exchange Board of India.

The rupee pared a three-week advance as the Japanese yen weakened against the euro and the dollar after the Finance Ministry in Tokyo said shipments from the world’s second-biggest economy fell 26.7 percent in November from a year earlier, the most since comparable data were made available in 1980.

“The rupee opened weaker tracking the broad trend across currency markets, particularly the yen’s losses,” said Paresh Nayar, chief of currency and fixed-income trading at Development Credit Bank Ltd. in Mumbai.

The yen declined to as low as 90.23 against the dollar in Tokyo from 89.31 late in New York on Dec. 19.

Offshore non-deliverable forward contracts showed traders increased bets for how far the rupee will fall in a month. The contracts indicate the rupee will trade at 48.35 a dollar a month from now, compared with expectations for a decline to 47.65 on Dec. 19.

Forwards are agreements in which assets are bought and sold at current prices for future delivery. Indian rupee forwards traded overseas are non-deliverable, meaning they are settled in dollars rather than the local currency.

To contact the reporters on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.