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Mumbai: India's rupee fell for a third day to the lowest in more than 13 months as crude oil's advance to a record increased demand for dollars needed to buy the commodity.
The rupee weakened past 43 a dollar for the first time since April 2007 on concern the 40 per cent increase in oil prices this year will slow growth and widen the nation's current-account deficit from last year's record. The rupee is the second-worst performer this year among the 10 most-traded Asian currencies excluding the yen.
"There are fundamental reasons for the rupee to fall given our dependence on imports to meet energy requirements," said Rav-indra Babu, a currency trader at state-owned Andhra Bank in Mumbai. "There are growing concerns about the current-account deficit widening, which may cause the rupee to drop further."
The rupee dropped as much as 0.9 per cent to 43.21 against the dollar, the lowest intraday since April 3, 2007, before closing at 42.965 as of 5 p.m. in Mumbai, according to data compiled by Bloomberg.
Factory output
"It may fall to 43.5 in the next few weeks," Babu said.
The rupee's decline gathered pace after a government report on May 12 showed the annual pace of growth in factory output more than halved to 3 per cent in March from 8.6 per cent the previous month.
The local currency is headed for a fifth weekly loss and has slid 8.3 per cent this year, erasing two-thirds of its 12.3 per cent gain last year. India imported oil worth $71.8 billion in the 12 months to March, 23.5 per cent more than a year ago. The rupee "will move both ways," Finance Minister Palaniappan Chidambaram told reporters today. He didn't elaborate.
The current-account shortfall widened to $5.4 billion in the three months ended December 31 from $3.7 billion a year earlier and $4.7 billion in the preceding quarter, the central bank said on March 31.
Decelerate
The economy may decelerate to about 8 per cent, the slowest since 2005, in the fiscal year that started April 1, according to Chidambaram. It expanded 8.7 per cent in the 12 months through March, slower than the 9.6 per cent growth in the previous year.
The local currency may still rebound from its 13-month low as the end of a worldwide credit market slump encourages investors to buy emerging-market assets, corporate treasurers in India said.
JSW Steel Ltd., the nation's third-biggest steelmaker, predicts the currency will rise more than 7 per cent in the next year to 40 per dollar, Finance Director Seshagiri Rao said. Grasim Industries Ltd., the No. 3 cement maker, and Larsen & Toubro Ltd., the largest engineering company, say India's growth and rising company earnings will fuel the rupee's recovery.
"Which other countries are growing at 8 per cent or so? Very few," Yeshwant M. Deosthalee, chief financial officer at Mumbai-based Larsen, said in an interview. "Investors have been holding back due to risk aversion. Once such concerns ease, they'll have to look at India. The rupee's tendency to appreciate will resume."
The rupee may advance to 39.50 against the dollar by the end of the year, according to the median forecast of 21 analysts surveyed by Bloomberg.
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