India’s rupee dropped, ending three weeks of gains, on speculation the central bank will sell the currency after it climbed to the highest in 16 months.
The rupee has rallied for the past six months, its longest winning streak since October 2003, making India’s exports more expensive. That may prompt the Reserve Bank of India to sell the currency, said S.T.P. Venugopal, chief currency trader at state- owned Central Bank of India. The rupee also fell as importers took advantage of the rally to buy dollars.
“The central bank will be concerned about the rupee’s gains, considering the importance of exports to the economy,” Mumbai- based Venugopal said. “The fall in quarterly exports is also weighing against the rupee. Already, we are seeing the trade gap adding pressure on the rupee.”
The rupee fell 0.1 percent to 44.1375 against the dollar at 9:10 a.m. in Mumbai, from 44.1113 on Feb. 2, according to data compiled by Bloomberg. The median in Bloomberg News survey of 10 traders showed the rupee may decline to 44.21 this week.
A stronger rupee makes goods and services more expensive for overseas buyers, stunting export growth and widening the current- account deficit. That gap, a key measure watched by traders to determine a currency’s value, almost doubled to $10.6 billion in the year ended March 31, from $5.4 billion the previous year.
India’s exports averaged $9.73 billion the quarter through December, compared with $10.69 billion in the previous three- months, according to government data. Imports of Asia’s fourth- largest economy climbed 31 percent to 15.50 billion, widening the trade deficit to $5.67 billion.
Declines in the currency may be curbed by speculation a record pace of economic growth will attract more investment.
“The India growth story is expected to draw more investments from abroad than before as the economy opens up,” said L.V. Prasad, chief currency trader at IndusInd Bank in Mumbai. “In the near term, dollar supply will remain more than the demand.”
Overseas investors bought more local equities than they sold for eight days through Jan. 25, the longest streak in almost three months, helping the benchmark stock index rise to a record on Feb. 2.
Net income of 21 out of the 30 companies that make the Bombay Stock Exchange Sensitive Index beat the median estimate of Bloomberg surveys of analysts for the quarter ended Dec. 31. India’s economy grew at an average of more than 8 percent for three years through March 2006, making it the world’s second- fastest growing major economy after China.
The central bank last week raised its growth forecast to as much as 9 percent for this fiscal year, from an estimate of about 8 percent.
The rupee also declined on speculation its advance last week will prompt importers including Indian Oil Corp., the nation’s largest refiner, to buy more dollars. The rupee’s gain means importers will have to convert less local currency to pay for overseas payments.
“I will advise importers to buy dollars,” Central Bank of India’s Venugopal said. “Also, dollar demand of refiners may strengthen given the steep rise in crude prices in the last few days. The rupee may weaken in the near term.”
Crude oil surged above $59 a barrel in New York, the highest close this year, because of increasing fuel demand in the U.S. and OPEC’s production cuts. India meets three-quarters of its energy needs from abroad.