Mumbai: The rupee had its biggest weekly loss in more than three years as concerns that credit squeeze would spread prompted global funds to reduce holdings of emerging-market assets.
The rupee fell for the second consecutive week as overseas funds turned net sellers of local equities this month, after buying more in the first seven months than they purchased in the whole of 2006. The benchmark stock index’s fall this week was the highest in more than five months.
“I expect pressure on the Indian rupee and stocks to persist,” said R.N. Hirve, chief currency trader at state-owned Central Bank of India in Mumbai. “Indications are that investment flows will begin to slow sooner than later.”
The rupee fell 1.7% to 41.31 against the dollar this week, its biggest decline since the five trading days ended 14 May 2004, according to Bloomberg.
Global investors have net sold $736.5 million (Rs3,063 crore) worth of equities in August after net purchases of almost $10 billion until 31 July this year.
Meanwhile, overnight cash rates rose to their highest in nearly five months on Friday, after a few banks resorted to sudden borrowing to cover last-minute reserve requirements with the Reserve Bank of India.
Reuters contributed to this story.