Rupee declines for second week as stock losses spur outflows

Rupee declines for second week as stock losses spur outflows
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First Published: Fri, Jun 13 2008. 11 24 PM IST
Updated: Fri, Jun 13 2008. 11 24 PM IST
Mumbai: The rupee, one of the worst performers this year among Asia’s most active currencies, declined for a second week as losses in local stocks spurred fund outflows.
The currency completed the worst week in a month after overseas funds sold more local equities than they bought on seven of the eight trading days in June. The benchmark stock index fell for a fourth week, the longest losing streak since February, on concerns the fastest inflation in more than seven years will erode the value of the returns from investments.
“Global investors are not finding convincing reasons for local stocks to rise significantly,” said Sudarshan Bhatt, chief currency trader at state-owned Corporation Bank. “The rupee will be under pressure to fall in the near term.”
The rupee dropped 0.6% this week to Rs42.94 per dollar in Mumbai, according to data compiled by Bloomberg. It may fall to 43 by next week, he said.
Wholesale prices jumped 8.75% in the last week of May, the most since February 2001, the government said on Friday.
Funds based abroad sold a net $5.1 billion (Rs21,879 crore today) of Indian shares this year through 12 June, according to the Securities and Exchange Board of India. They bought a net $17.2 billion last year, a record, helping the rupee complete its best year since at least 1974.
The rupee pared losses on speculation that the Reserve Bank of India will allow gains in the currency to slow the pace of wholesale price increases. Central banks intervene in currency markets by arranging purchases or sales of foreign exchange.
“We should see some appreciation in the rupee from here, primarily because of rising speculation that the central bank will intervene to support it,” said Rohan Lasrado, a foreign exchange trader at HDFC Bank Ltd. “The central bank is the only source of strength for the rupee. There is speculation it will use the exchange rate to curb inflation,” he added.
The rupee may rise to 42.5 in the next one month, Lasrado said.
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First Published: Fri, Jun 13 2008. 11 24 PM IST
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