Mumbai: The rupee fell to a six-month low as losses in stocks raised speculation that global funds will reduce their local shareholdings.
The rupee fell by the most in two weeks after the US Federal Reserve cut its discount interest rate to restore confidence in the financial markets. The rupee is the second-worst performer this year among Asia’s 10 most traded currencies outside Japan.
“The impact of global financial market development is going to be deep on India, particularly on the rupee, because inflows will slow,” said Ajay Mahajan, head of financial markets at Yes Bank Ltd in Mumbai.
The rupee declined as much as 1% to 40.845 per dollar, the weakest level since 6 September, before closing at 40.725, according to data compiled by Bloomberg. The rupee has slid 10% against the euro this year, after advancing 0.5% last year.
The Bombay Stock Exchange’s Sensex fell 6% to the lowest level since 24 August.
Overseas funds sold a daily average $83 million (Rs338.6 crore) of equities more than they bought in the four days through 13 March. Record net purchases of $17.2 billion in 2007 helped the rupee complete its best year since at least 1974.
Finance minister Palaniappan Chidambaram on Monday said the impact on India of the subprime crisis will be moderate.
“Our assessment indicates that the impact upon India will be a second-order impact, a moderate impact,” he told lawmakers.