Mumbai: The rupee weakened to a one-month low on Wednesday, weighed down by an almost 3% drop in the local stock market that could trigger profit-taking by foreign portfolio investors.
The partially convertible rupee ended at Rs48.13/14 per dollar after hitting Rs48.16, which was its lowest since 18 May, and about 0.8% weaker than Tuesday’s close of Rs47.75/76.
It has lost almost 2% this month, but is up 8.5% from a record low of Rs52.2 hit on 3 March as foreign investors bought Indian shares worth nearly $8 billion over three months.
“The fall in the stock market was the primary factor, which pulled the rupee lower,” a senior trader with a foreign bank, said.
“With the rupee now beyond 48 to the dollar, there is more likelihood of the RBI intervening,” he said, referring to the Reserve Bank of India.
The RBI buys or sells dollars through a clutch of state-run banks to check volatility in the local unit.
The Bombay Stock Exchange 30-share benchmark fell 2.9% to their lowest close in three weeks, as doubts about the health of the global economy dampened sentiment worldwide and sparked profit-taking on an 86% rally since early March.
Despite the rupee’s losses in June, analysts expect the currency to appreciate by the end of December.
A victory for the ruling coalition in national elections last month has raised hopes for economic reforms such as opening up the insurance and pension sectors and stake sales in state companies.
“The recent election outcome, the revival in global risk appetite and pick-up in capital inflows into India positively affect the balance of payments,” Macquarie analyst Rajeev Malik wrote in a note.
“We reiterate our INR/USD (rupee-dollar) forecast of 46 by end-2009, strengthening further to 43 by end-June 2010.”
One-month offshore non-deliverable forward contracts were quoting at 48.22/48.32, slightly weaker than the onshore spot rate.
Oil is one of the country’s biggest imports and global prices have doubled since February. One-month offshore non-deliverable forward contracts were quoting at Rs47.95/48.05, weaker than the onshore spot rate.