Rupee closes near one-week low against US dollar on lower GDP estimates

Mumbai: The Indian rupee on Monday weakened to near one week low against the US dollar, tracking the losses in the Asian currencies markets and also on the pessimism on domestic markets following lower economic growth projections last Friday.

Traders were also worried that the full-year gross domestic product (GDP) may come even lower than estimates after the impact of demonetisation is factored in.

The home currency closed at 68.21 a dollar—a level last seen on 3 January, down 0.35% from Friday’s close of 67.96. The rupee opened at 68.16 a dollar. So far this year it fell 0.4%.

India’s economic growth is likely to decelerate to 7.1% in 2016-17 from 7.6% the previous year, while gross value added will be at 7% year-on-year, according to Central Statistics Office (CSO) estimates. However, the impact of demonetisation was not incorporated in the estimate on account of paucity of indicators.

“We note that RBI (Reserve Bank of India) in its revised projections has pegged GVA at 7.1% year-on-year. However, the government estimate mainly uses data for seven months and hence does not capture the impact of demonetization. Nevertheless, just based on the weakness in data in the first half, the second half GDP is also likely to be substantially lower,” said ICICI Bank Global Markets note to its investors.

The CSO will release a second advance estimate on 28 February to incorporate additional data.

“We note that the second advance estimate would be more useful in judging actual impact rather than this print as this is just an extrapolation of available data and will probably be used as an indicator for Union budget purposes. We expect focus on capex spending to continue in light of sharp decline in gross fixed capital formation,” the ICICI Bank note added.

India’s benchmark Sensex index closed at 26,726.55 points, up 0.12% or 32.68 points from its previous close. So far this year, it gained 0.5%.

The 10-year bond yield closed at 6.397%, compared to Friday’s close of 6.389%. Bond yields and prices move in opposite directions.

The government will issue index of industrial production (IIP) and consumer price inflation (CPI) data for November and December on 12 January. According to Bloomberg analyst estimates, IIP will be at -2.2%, while CPI will be at 3.5%. The government will also release wholesale price inflation (WPI) data on 16 January.

So far this year, foreign institutional investors sold $238.69 million in equity, and bought $139.84 million in debt.

Most Asian currencies were trading lower after US jobs and wage data for December bolstered expectations for higher Federal Reserve interest rates.

There were 156,000 increase in December payrolls followed by a 204,000 rise in November that was bigger than previously estimated; median forecast in a Bloomberg survey of economists called for a 175,000 advance. Jobless rate ticked up to 4.7% as the labour force grew; wages rose 2.9% from December 2015.

South Korean won was down 1.27%, Taiwan dollar 0.37%,China offshore 0.36%, Philippines peso 0.24%, China renminbi 0.18%, Malaysian ringgit 0.10%, Singapore dollar 0.06%. However, Japanese yen was up 0.17%, Indonesian rupiah 0.07%

The dollar index, which measures the US currency’s strength against major currencies, was trading at 102.41, up 0.19% from its previous close of 102.22..