Rupee drops for third week as outlook remains gloomy

Rupee drops for third week as outlook remains gloomy
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First Published: Fri, Mar 06 2009. 09 53 PM IST
Updated: Fri, Mar 06 2009. 09 53 PM IST
Mumbai: The rupee declined for a third week on concern that prolonged financial turmoil and a deepening global economic slump will increase capital outflows.
The currency approached a record low as India’s benchmark stock index slumped 6.4% this week. The Standard and Poor’s 500 Index slid 4.3% on Thursday to the lowest since 1996 after Moody’s Investors Service said it may cut JPMorgan Chase and Co.’s credit rating. “Financial markets are reeling under pressure and the rupee is bearing the brunt,” said Jai Prakash, a currency trader at state-owned Andhra Bank in Mumbai. “The bias will remain for the rupee to weaken.”
The currency fell 1.1% this week to 51.7025 a dollar at close in Mumbai, according to data compiled by Bloomberg. It touched a record-low 52.185 on 3 March.
The MSCI Asia Pacific Index of shares completed a fourth weekly loss. Overseas investors increased sales of Indian equities in the first three days this week. They sold an average $130.4 million more than they bought, compared with $83.9 million last week, data from markets regulator Securities and Exchange Board of India show.
Net sales by foreign funds reached $2.1 billion this year, adding to a record $13.3 billion in 2008.
The central bank on 4 March reduced its overnight lending and borrowing rates to record lows of 5% and 3.5% after government data last week showed Asia’s third biggest economy expanded 5.3% in the fourth quarter, the slowest pace in five years.
Sliding interest rates have eroded the yield advantage Indian debt has over US treasurys. Two-year local government bonds offered 4.10 percentage points more than similar maturity treasury notes, narrowing from as high as 7.13 percentage points in October, Bloomberg data show.
The economy will start showing signs of recovery from October as the government sharply steps up spending and stimulus packages begin to help improve domestic demand, home minister P. Chidambaram said on Friday. It will return to 7% growth in the second half of 2009, he said in Mumbai.
Non-deliverable forward contracts indicate traders bet the rupee will weaken 0.2% to 52.05 to the dollar in a month, compared with expectations for a rate of 52.15 on Thursday.
Forwards are agreements in which assets are bought and sold at current prices for future delivery.
Non-deliverable contracts are settled in dollars rather than the local currency.
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First Published: Fri, Mar 06 2009. 09 53 PM IST