Rupee takes a break, falls on speculation of dollar purchases

Rupee takes a break, falls on speculation of dollar purchases

New Delhi: The rupee declined from a two-week high, snapping four days of gains, on speculation the central bank sold it to prevent a stronger currency from hurting exports.

Finance minister P. Chidambaram told lawmakers last week the “sharp appreciation" of the currency in the past few months “has put pressure" on exporters. A stronger currency encourages imports while making goods and services shipped overseas more expensive to customers abroad.

“There may have been some central bank purchase of dollars to slow the rupee’s rally," said V. Rajagopal, chief currency trader at Kotak Mahindra Bank Ltd in Mumbai. “They may not want it to appreciate too sharply."

The rupee fell 0.2% to 39.495 against the dollar at the close of trading in Mumbai, according to data compiled by Bloomberg. It may trade between 39.40 and 39.55 in coming days, Rajagopal said. India’s trade deficit widened to a record $7.5 billion (Rs29,550 crore) in October, the trade ministry said in a report on 3 December. The rupee has gained more than 12% this year, making it the second best Asian performer.

“The sharp appreciation of the rupee over the last several months has put pressure on the export sectors, particularly those with low import intensity such as leather, textiles, handicrafts and marine products," Chidambaram said on 29 November. “The government is sensitive to the pressures on these sectors."

He reduced the customs duty on some imported goods and eased some credit terms for leather and textile exporters to help them cope with the rupee’s gains.

Rupee earlier advanced to the highest in almost two weeks as the benchmark stock index advanced. Stock purchases by global funds helped push the Bombay Stock Exchange Sensitive Index, or Sensex, to an all-time high on 30 October. Private equity flows chasing the second-fastest growth among the world’s major economies also helped the rupee advance to the highest in almost a decade last month. Bloomberg

Pooja Thakur in Mumbai contributed to this story.