India’s Rupee Will Rise as Imports Cool, Bank of America Says

By Anoop Agrawal

Jan. 19 (Bloomberg) -- India’s rupee is likely to strengthen 6 percent this quarter as slower economic growth and cheaper oil reduce the nation’s imports, helping narrow the current-account deficit, Bank of America Corp. said.

The currency will climb to 46 per dollar by March 31 and reach 45 toward the end of the year as demand for foreign exchange eases, said Yeo Han Sia, strategist for the largest U.S. bank by market value. The currency last year dropped 19 percent, its worst performance since 1991, and so far in 2009 has slipped 0.1 percent to 48.72 as overseas investors reduced their holdings of the nation’s equities.

“The current-account position will look a lot stronger this year than it has been before because demand from the external sector will be much weaker,” Singapore-based Sia said in an interview. “India remains more of a domestic-demand- driven economy and on that parameter the currency will tend to gain.”

India’s oil imports fell for a third month in November as a global recession helped push crude oil prices below $50 a barrel for the first time in more than three years. Growth in Asia’s third-largest economy may slow to 7 percent in the year ending March 31, Foreign Minister Pranab Mukherjee said on Jan. 12, compared with 9 percent or more in the previous three years.

Oil Costs

India’s current-account deficit, which includes trade and investment flows, widened to a record $12.54 billion in the three months ended Sept. 30 as a weaker currency and higher oil prices boosted the nation’s import bill. The rupee dropped 8.4 percent during the quarter, its worst performance since 1992, and the cost of crude oil reached an all-time high of $147.27 a barrel on July 11.

Crude last month reached a five-year low of $32.40 on the New York Mercantile Exchange and was recently $36.15 in after- hours trading.

The rupee will slip to 49 per dollar this quarter, before climbing to 47.45 by the end of the year, according to the median estimates of analysts surveyed by Bloomberg News. Traders are betting the currency will fall to 49.33 in three months and 50.66 in a year, non-deliverable forward contracts show.

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