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Business News/ Opinion / Online-views/  Rupee sees steepest drop in 11 years
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Rupee sees steepest drop in 11 years

Rupee sees steepest drop in 11 years

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Mumbai: The rupee slid the most in 11 years on speculation that importers sold the currency to take advantage of a one-month-long rally in the currency.

The rupee also fell as government spending helped solve a cash shortage at banks that had prompted them to reduce holdings of dollars to meet loan demand. Importers, settling their accounts for the year ended 31 March, had delayed purchases of dollars to get the best rate as the rupee appreciated.

“Importers couldn’t have asked for anything better after the rupee’s rise," said V. Rajagopal, chief currency trader at Kotak Mahindra Bank in Mumbai. “They saw the opportunity and wisely grabbed it."

The rupee had the biggest fluctuation of any currency on 29 March, falling 1.75 to 43.76 against the dollar as of the 5pm close in Mumbai. The decline was the biggest since 18 March 1996, according to data compiled by Bloomberg.

Funds held at banks dwindled after 15 March as companies withdrew funds to pay as much as Rs40,000 crore ($9.1 billion) in advance taxes, according to traders’ estimates.

India reduced import duties on alloy steel, cement, copper, aluminium and chemicals in February to curb inflation, helping to boost demand for dollars in Asia’s fourth-largest economy. Imports rose 23.2% to $15.4 billion in January from a year earlier, the ministry of commerce and industry said on 1 March.

The rupee pared losses on speculation that banks need to replenish holdings of the currency following the exit of funds as corporations and individuals paid their taxes for the fourth quarter of the fiscal year ending 31 March. “The preference to sell dollars will remain because liquidity in the system is not at levels traders would expect," said L.V. Prasad, chief currency trader at IndusInd Bank in Mumbai. “The liquidity situation may not improve in the next few days at least." The rate banks charge each other for overnight loans has almost doubled since 15 March, the day companies paid tax bills.

The rupee also pared losses on speculation that overseas investors bought more local equities to benefit from growth that is set to be second-fastest among the world’s major economies in the year through 31 March. That has helped the benchmark stock index rise in the past 12 months, leaving it poised for its fourth straight annual increase in the fiscal year through 31 March.

“Flows are still strong, which is keeping the undertone on the rupee bullish," Prasad said. “We may see the rupee resume rising in the next few days."

Global funds bought $1.57 billion more of Indian shares than they sold this year through 28 March according to the stock market regulator. They purchased $8 billion in 2006, following a record $10.7 billion the prior year.

The world’s biggest movers are based on changes in price yield and are screened for the size of the market and amount of daily trading.

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Published: 30 Mar 2007, 12:36 AM IST
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