Mumbai: The rupee dropped the most this month on speculation that importers will buy dollars after the Indian currency this week rose to the strongest in almost nine years.
Capital flows into Asia’s fourth largest economy have increased, helping the rupee rise for nine weeks through 4 May, the best run since May 2003. That has made purchases of the dollar cheaper for importers like Indian Oil Corp. Ltd, the nation’s largest refiner.
“Importers are showing interest to buy dollars as it seems the rupee’s advances may have peaked for the time being,” said Ganesh Puthran, a currency trader at SBI Commercial & International Bank Ltd in Mumbai. “The rupee may tend to decline a bit in the next few days.”
The rupee fell 0.2% to 40.9137 against the dollar as of the 5pm close in Mumbai, according to data compiled by Bloomberg. That’s the biggest fall in May. The currency rose as high as 40.545 on 7 May, the strongest since May 1998.
The growth of India’s economy at a pace behind only China among the world’s major economies suggests consumers are spending more on goods from abroad. The local currency’s 7.6% appreciation this year is also important as India imports three-quarters of its energy needs.
India, the world’s second-biggest wheat consumer, may need to import more grain sooner than expected as demand from noodle and biscuit makers outstrips domestic production, government officials said on 30 April. India may buy 5 million tonnes of the grain overseas this year, 25% more than a Bloomberg estimate in April.
The currency pared losses on speculation overseas investors will increase purchases of local equities to benefit from rising company earnings.
“The broad trend of the rupee will be to rise because of the strong capital flows,” said L.V. Prasad, chief currency trader at IndusInd Bank Ltd. in Mumbai. “Some sort of position adjustments are happening and the rupee’s fall today may be short-lived.”
Global funds in April bought $1.52 billion more of Indian stocks than they sold, according to stock exchange data. They sold $243 million worth of stocks more than they bought in March.