The rupee rose on speculation exporters converted overseas earnings following the currency’s biggest monthly slide in more than a decade.
The rupee snapped two days of losses as crude oil’s slump from near a record high eased concern that import costs will increase for Asia’s third-biggest economy.
The local currency’s decline to a 13-month low made it attractive to companies such as Tata Consultancy Services Ltd, the country’s biggest software exporter, as a weaker rupee boosts local income.
“Exporters have sold dollars after it showed resistance to rise beyond a point,” said Sanjay Arya, treasurer at state- owned Bank of Maharashtra in Mumbai. “I expect the rupee to rise in the near term because dollar demand is slowing.”
The rupee gained 0.5% to 42.73 against the dollar at close in Mumbai on Wednesday, according to data compiled by Bloomberg. The currency, which has dropped 4.6% this month, may rise to 42.5 in a few weeks, Arya said.
The rupee is headed for a fourth monthly loss after crude oil more than doubled in the past year to reach an all-time high of $135.09 (about Rs5,795) a barrel on 22 May. India depends on imports to meet three-fourth of its annual energy requirement.
JPMorgan Chase & Co., joining Goldman Sachs Group Inc., lowered its forecasts for the rupee in a research note dated 26 May. The rupee, the second-worst performer this year among the 10 most-active currencies in Asia excluding the yen, will weaken more than 5% to 45 against the dollar by the end of 2008, against an earlier forecast of 40, the third-largest US bank said.
“Deteriorating balance of payments dynamics led us to reassess our view,” wrote JPMorgan’s strategists Siddharth Mathur and Vikas Agarwal. “We were optimistic of a reversal in the rupee later in the year, driven by a revival of global risk appetite and return of stability to the credit markets. We no longer anticipate rupee strength in the second half of 2008.”
The advance in oil will almost double the nation’s import bill to $100 billion at the end of current fiscal year from $55 billion last year, according to JPMorgan.