Mumbai: The rupee fell, ending two days of gains, on speculation the central bank (Reserve Bank of India) sold the currency to stem a rally that eroded export earnings.
A stronger currency encourages imports while making goods and services shipped overseas more expensive to customers abroad. Record stock purchases by global funds helped push the currency to the strongest in almost a decade last month.
“There was speculation of the central bank buying dollars probably to help exporters,” said V. Rajagopal, chief currency trader at Kotak Mahindra Bank Ltd in Mumbai. “That was enough to keep the rupee under pressure.”
The rupee fell to 39.41 against the dollar at the close of trading in Mumbai from 39.405 on 7 December, according to data compiled by Bloomberg.
The government lowered customs duty on some imported goods and eased some credit terms for leather and textile exporters to help them cope with the rupee’s 11.3% gain this year.
The rupee rose earlier on Monday on speculation overseas investors will buy more equities to benefit from India’s record economic growth.
The local currency rose to the highest in more than two weeks as funds abroad purchased more stocks than they sold for five days through 6 December, the longest buying streak in almost two months, according to Securities and Exchange Board of India.
“I think investors’ confidence is deep and strong and should help bringing in more flows,” said Vikas Babu, a currency trader at state-owned Andhra Bank Ltd in Mumbai. “The rupee should sustain its advances in the near term.” It may rise to 39.20 by the end of next week, Babu said.
Overseas funds have more than doubled their investments in stocks this year to a record $16.5 billion (Rs65,010 crore) as economic growth in the year ending in March will match average 8.6% pace of the past four years, according to the central bank.