Mumbai: The rupee fell from a two-week high on speculation importers bought dollars to benefit from the local currency’s recent advance.
The rupee weakened the most in more than a week as companies, including Indian Oil Corp., the country’s biggest refiner, may have increased dollar purchases to pay for crude oil after the commodity’s price fell last week, said Ravindra Babu, a trader at the state-owned Andhra Bank. The currency closed at a two-week high on 1 February. “This trend may persist in coming weeks,” Mumbai-based Babu said. “With no strong reasons appearing that could lift the rupee, dollar buying by importers is only going to quicken.”
The rupee declined 0.3% to close at 39.45 per dollar in Mumbai, according to data compiled by Bloomberg. That’s the biggest drop since 23 January. India’s imports rose 18% in December to $17.7 billion (Rs69,738 crore) from a year ago, according to data provided by the ministry of commerce and industry on 1 February.
Currency losses were tempered by speculation global investors, who sold a record amount of local equities last month, will return to buy shares.
The Bombay Stock Exchange’s benchmark index, or Sensex, has rebounded almost 6% this month after a 13% slump in January made shares cheaper to some investors. “Dollar supplies have improved, given the positive trend in stocks,” said Sudarshan Bhatt, chief currency trader at the state-owned Corporation Bank in Mumbai. “The rupee should remain supported by the flows.”
Overseas funds sold a net $4.3 billion of shares in January—a monthly record, according to the Securities and Exchange Board of India.
The rupee gained 12.3% last year—the most since at least 1974, as funds abroad bought an all-time high $19.5 billion in local shares and bonds.
Meanwhile, India’s benchmark bonds declined on speculation debt auctions this week will push yields higher.
The notes ended two days of gains after the government tripled the size of the offer to Rs16.5 trillion from last week. The sales include treasury bills. “The supply is big and will be accommodated only if present trading positions are reduced,” said Kamlesh Chand, a fixed-income trader at IndusInd Bank Ltd in Mumbai. “So yields are likely to rise in the next few days.”
The yield on the most-traded 7.99% note due July 2017 rose 1 basis point to 7.51% at close in Mumbai, according to the central bank’s trading system. The price fell 0.07, or 7 paise per Rs100 face amount, to Rs103.20. A basis point is 0.01 percentage point. The Centre will auction Rs9,000 crore of debt on 8 February as part of its annual borrowing programme. India will sell also Rs4,000 crore of two-year securities under the so-called stabilization plan to prevent surplus cash from stoking inflation. It sold Rs3,000 crore of such securities last week.