The rupee, trading near an eight-year high, ended three days of gains on speculation the Reserve Bank of India (RBI) will sell the currency to protect exporters.
The third-best performer in the past month in the Asia-Pacific region, the rupee has climbed 9% from a three-year low reached on 19 July. The rally curbed annual growth in exports to less than 10% in the three months through February, the slowest pace in more than three years.
“Given the central bank’s policy of keeping the real-effective exchange rate within a reasonable limit so as not to hurt exports, there’s an expectation they might intervene,” said Rohan Lasrado, a currency trader at HDFC Bank in Mumbai. The rupee fell 0.1% to 42.875 against the dollar at the 5pm close of trading in Mumbai, from 42.845 on 10 April, according to data compiled by Bloomberg. The technical resistance level is at 43.15, Lasrado said.
Growth in India’s shipments of goods and services abroad was 7.9% in February, according to the latest data from the ministry of commerce and industry, after slowing to 5.5% in the prior month, the least since October 2003.
Exports, key to narrowing the trade deficit, expanded 33.6% in November.
A stronger currency makes goods and services more expensive abroad, crimping exports while it also makes imports cheaper, widening the trade deficit.
The real-effective exchange rate of the rupee, a gauge used by the central bank to measure its relative value against a basket of its trading partners, is at 111.07, near the highest since at least 2000, according to data provided by JP Morgan Chase & Co., whose index closely resembles that of RBI.
The rupee rallied three quarters in a row and extended gains this month as capital flows from overseas increase, with investors betting that a faster pace of growth in Asia’s fourth-biggest economy will offer them higher returns for their investments.