Mumbai: The rupee declined this month on speculation that importers exchanged the currency for dollars to pay month-end bills.
The currency closed at the lowest level in more than 17 months on concerns that slowing growth and inflation near a 16-year high will prompt overseas investors to dump more local shares.
The government on Friday said Asia’s third biggest economy expanded in the second quarter at the slowest pace since December 2004.
“Sentiment is not supportive of buying the local currency because of widespread dollar demand,” said Shashi Ranjan Giri, a trader with state-owned Allahabad Bank in Mumbai. “The equity market trend is suggesting we may see some more stock sales by overseas investors.”
The rupee weakened 3.1% this month. It fell 0.4% on Friday to end at 43.94 against the dollar in Mumbai.
The economy expanded 7.9% in the quarter ended June, slower than the 8% median forecast of economists in a Bloomberg survey.
Finance minister P. Chidambaram said the economy will meet the target of 8% growth this year.
“Eight percent growth is not to be scoffed at, it is something you ought to be proud of,” Chidambaram told reporters in Mumbai. “There’s a high degree of savings, a high degree of investment.”
The government on Thursday said wholesale prices jumped 12.4% in the week ended 16 August from a year earlier, after increasing 12.63% in the previous week, which was the biggest gain since June 1992.
India’s average oil import costs swelled to $8 billion (Rs35,040 crore today) a month this year, from $5.5 billion in 2007, trade ministry data showed.
Overseas investors sold $7.2 billion more local shares than they bought this year as the benchmark stock index slumped 28%. They were net sellers of local stocks on all, but six of the 17 trading days this month through 27 August. Net equity purchases reached a record $17.2 billion in 2007.
The National Stock Exchange India Ltd on Friday started trading in currency futures, the country’s first, to help investors hedge their foreign exchange risks. Futures contracts are agreements to buy, or sell a currency, commodity, or other financial products at a later specific price and date. The total traded volume on the first day was $65.8 million, the bourse said.