Rupee eases on capital outflow worries

Rupee eases on capital outflow worries


Mumbai: The rupee eased on Tuesday, 9 October, moving further away from last week’s nine-and-a-half-year high on concerns that risk of early elections may spur some foreign investors to sell local shares and repatriate their funds.

At 9:24am (0354 GMT), the partially convertible rupee was at 39.53/54 per dollar, weaker than Monday’s close of 39.455/460 and backing away from last week’s peak of 39.36, which was its strongest since March 1998.

“The mood has become very cautious, and dealers are going to wait for the stock markets to open before taking fresh positions," said a local trader.

The main stock index fell 1.6 percent on Monday, which may lead to a slowing in foreign buying of stocks, or some selling which would remove a driver of the rupee’s recent gains.

It opened weaker on Tuesday, falling more than 1%, but then rebounded into positive territory.

The rupee has risen 12% so far in 2007, powered by capital inflows into stock markets.

Foreigners bought nearly $1.5 billion of local stocks in the first three sessions of this month, about 1/10th of their net purchases in 2007.

But an impasse between the Congress party, which leads the coalition government, and its communist allies over a nuclear deal with the US could lead to early elections.

An early election would be unlikely to be held until next year, and could lead to a slowing of reforms or increased spending by the government.