Mumbai: The rupee fell for a second day on speculation that the central bank bought dollars to stem a rally in the local currency that threatened to erode export earnings.
The currency also dropped as importers bought dollars, which they need to pay for shipments from abroad, on concern purchases by the Reserve Bank of India (RBI) will make the US currency costlier. A government report on Thursday showed that industrial growth slowed in May, raising concern that interest rate increases by RBI may be cooling expansion.
“Importers have been waiting in recent days to see how far the rupee would rise to buy dollars at the lowest levels,” said R.V.S. Sridhar, vice-president of treasury at UTI Bank Ltd based in Mumbai.
“As soon as there were signs RBI intervention is dragging the rupee down, the companies entered the market to buy dollars,” he said.
The rupee fell 0.2% to 40.4975 per dollar as of the 5pm close in Mumbai. It dropped as low as 40.705 in intraday trading, the lowest in one week. The Indian currency has gained 9.3% this year, more than five times its advance in 2006. It is the second-biggest gainer among Asian currencies this year.
The Federation of Indian Export Organisations had asked the government on 5 July to take measures to temper the rupee’s appreciation, which it said is hurting Indian companies’ overseas sales.
Export growth slowed to 12.7% in the five months through May from 19% in the year-ago period, a government report said on 2 July. Infosys Technologies Ltd, India’s second-largest computer-services provider, cut its profit and sales estimates on Wednesday after a stronger rupee eroded the value of earnings from the US, its largest market.
RBI has been managing capital inflows and the exchange rate by purchasing dollars and mopping up excess cash, deputy governor Rakesh Mohan said on 14 June.
Its foreign exchange reserves rose $36.2 billion in the first half, compared with $25.7 billion for the six-month period last year, suggesting it bought more foreign currency. BLOOMBERG