India’s rupee declined for a fourth week on concern near-record oil prices will boost the nation’s import bill, widening its trade and current-account deficits.
The currency declined as much as 0.5 percent today to a 13- month low as demand for dollars needed to pay for crude oil increased after the commodity climbed to an all-time high of $126.98 per barrel this week. The rupee pared losses on speculation the government will ease curbs on overseas borrowings by companies, allowing more capital inflows.
``The rupee’s decline reflects concern high oil prices will increase the external deficits,’’ said Roy Paul, assistant manager of treasury at Federal Bank Ltd. in the southern Indian city of Kochi.
The rupee weakened 2.2 percent to 42.5075 a dollar this week in Mumbai, adding to last week’s 2.3 percent slide, the worst in a decade, according to data compiled by Bloomberg. It earlier dropped to 42.915, the lowest intraday level since April 12, 2007.
The currency’s 7.6 percent decline this year is the third- worst performance among the 10 most-traded Asian currencies after the South Korean won and the Thai baht.
Funds based abroad sold $2.2 billion more of Indian stocks and bonds than they bought this year, after purchasing a net $19.5 billion in 2007, according to data from the Securities and Exchange Board of India.
Crude Oil
The rupee fell 8.1 percent in the past six months as crude oil advanced 33 percent, boosting the value of India’s oil imports to a record $8.6 billion in March, government data show. Asia’s third-largest economy depends on shipments from abroad to meet three-quarters of its energy needs.
The South Asian nation’s trade deficit widened to an all- time high of $25.4 billion in the three months through December, according to the central bank. The current-account shortfall, a measure of trade and investment flows, increased to $5.4 billion in the same quarter from $4.7 billion.
The rupee rose today, cutting the week’s losses, on speculation the government will relax limits on foreign-currency borrowings by companies.
The Economic Times newspaper reported today that India will make it easier for domestic companies to borrow cheaper funds abroad after industrial production expanded at the slowest pace in six years in March. India imposed limits on such borrowings last year to slow capital inflows that helped the rupee reach an almost a decade high, threatening to erode export earnings.
Borrowing Curbs
``The rupee should halt its decline around current levels as the market waits for government measures that may boost capital flows,’’ said Mohan Shenoi, treasurer at Kotak Mahindra Bank Ltd. in Mumbai. ``It is expected that the government is going to review restrictions on external commercial borrowings.’’
India can ease restrictions on overseas borrowings among other measures to ensure stability of the financial system, the Hindu newspaper reported May 3, citing central bank Governor Yaga Venugopal Reddy.
Indian companies borrowing more than $20 million overseas can’t repatriate the proceeds, while they need the central bank’s permission to bring back funds up to $20 million, according to current government regulations.
The annual pace of growth in India’s industrial production more than halved to 3 percent in March from 8.6 percent in the previous month. The gain was the smallest since February 2002.
Source : Bloomberg
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