Mumbai: The rupee weakened to the lowest level in almost 21 months on speculation that refiners were buying dollars as crude oil price approached $100 a barrel.
The local currency extended September’s losses also on concern that overseas investors will add to sales of Indian shares as regional stock indices declined.
Capital outflows from the stock market and rising demand for dollars to pay for falling crude oil may widen the current account deficit.
India meets more than 70% of its annual energy needs with imports.
“The underlying dollar demand is strong at a time when supply is far less,” said Sudarshan Bhatt, chief currency trader at state-owned Corporation Bank in Mumbai. “The rupee will face more pressure in the near term.”
The rupee fell 0.5% to 44.825 a dollar at the 5pm close in Mumbai, according to Bloomberg data. That is the lowest since 12 December 2006. It may decline to 45 a dollar this week, Bhatt said.
Crude oil for October delivery was at $104.97, approaching $100 for the first time since April. It has dropped 28% from its record $147.27 reached on 11 July. India’s average oil import costs increased to $8.2 billion a month this year, from $5.5 billion in 2007, trade ministry data show.
Funds based abroad have sold $7.5 billion more Indian shares than they bought this year, following a record $17.2 billion in net purchases in 2007, data provided by market regulator Securities and Exchange Board of India show.
The rupee has declined 12.1% this year, making it the third worst performer among the 10 most active Asian currencies outside Japan.
It has erased almost all of last year’s 12.2% advance.
Reserve Bank of India governor D. Subbarao said the central bank’s exchange-rate policy has served it well so far. The policy to intervene to stem volatility will be continued, he said in Mumbai.
Central banks intervene in currency markets by arranging sales or purchase of foreign exchange.
The rupee will decline to 45.80 in three months, the lowest level since October 2006, a technical analyst at Standard Chartered Plc. said, citing charts used to predict price trends. The so-called “bull flag” pattern, in which price movements resemble a flag on a pole, indicates the dollar will extend its rally against the rupee, Callum Henderson, Singapore-based head of foreign-exchange strategy at Standard Chartered, wrote in a research note on Tuesday.
Dollar-rupee moving averages also indicate the Indian currency will fall further, he wrote. “The bull flag pattern extension points toward” more rupee losses, according to him.
“The dollar-rupee weekly chart remains bullish, with the 13-week moving average well above the 50-week moving average, which supports the dollar’s uptrend.”