India’s rupee declined for the fifth week, the worst run in almost two years, as record crude oil costs spurred demand for dollars needed to buy the commodity.
The local currency fell to the lowest since April 2007 this week as companies such as Indian Oil Corp., the nation’s largest refiner, paid more for raw materials. Higher oil costs may slow growth of Asia’s third-largest economy, which depends on imports to meet three-quarters of its annual energy needs.
``The pressure on the rupee continues because refiners are looking to cover dollar needs arising in the short term,’’ said Rohan Lasrado, a foreign-exchange trader at HDFC Bank Ltd. in Mumbai. ``Adding to the rupee’s worries will be the inconsistent dollar supply.’’
The rupee declined 0.5 percent this week to 42.705 versus the dollar at the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. It may fall to 43.25 in next few days, Lasrado said.
The rupee is the second-worst performer this year among Asia’s 10 most-traded currencies, excluding the yen.
The local currency will rise by almost 9 percent through the end of the year as the central bank raises borrowing costs by July to fight inflation that’s at the fastest pace in 3 1/2 years, Fortis Bank SA said.
The currency will rebound from its lowest in 13 months as the Reserve Bank of India increases the repurchase rate to 8 percent from 7.75 percent before its next meeting on July 29, Joseph Tan, Fortis Bank’s Singapore-based strategist, said in an interview.
Tightening Policy
``Economic growth is pretty much intact, but inflation is a new threat and there is no scope for the central bank to have a neutral monetary policy approach,’’ Tan said. ``I am leaning toward believing that the central bank will tighten monetary policy further, despite what the economy is going through, and will also use the exchange rate.’’
Fortis predicts the rupee will rise to as high as 39.4 at the end of this year. It is among the 21 respondents in a Bloomberg News survey, all of whom predict that the currency will rise in 2008.
Goldman Sachs Group Inc. revised its forecasts for the Indian rupee, predicting a 3.2 percent drop in the next six months because rising oil costs will increase the import bill and double the nation’s current-account deficit. Goldman wasn’t part of Bloomberg’s survey.
The broad measure of trade that includes investment flows will widen to 3.5 percent of gross domestic product in the fiscal year ending in March from 1.5 percent the previous year, Goldman’s Tushar Poddar and Pranjul Bhandari wrote in a note.
Caught By Surprise
``The recent large move up in the dollar has caught us by surprise and appears to be driven by the run-up in oil prices,’’ wrote Mumbai-based Poddar and Bhandari, analysts at the world’s largest securities firm by market value. ``The rupee will continue to weaken.’’
Goldman changed its three-month, six-month and one-year forecasts for the rupee to 43.9, 44.1 and 42.2 from earlier estimates of 41, 40.3 and 38.9, respectively.
The current-account shortfall widened to $5.4 billion in the three months ended Dec. 31, from $3.7 billion a year earlier and $4.7 billion in the preceding quarter, the central bank said on March 31. That was after the country imported oil worth $71.8 billion in the year through March 31, 23.5 percent more than a year earlier.
