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Mumbai: India's rupee dropped to a six- month low as declines in Asian stocks raised speculation funds will reduce their holdings of emerging-market assets.
The rupee fell the most in two weeks after the US Federal Reserve cut its discount interest rate to restore confidence in the financial markets shaken by the collapse of Bear Stearns.
The rupee was the second-worst performer among Asia's 10 most- traded currencies as the benchmark stock index has fallen about 29 per cent from its all-time high reached in January.
"The impact of global financial market development is going to be deep on India, particularly on the rupee, because inflows will slow," said Ajay Mahajan, head of financial markets at Yes Bank. "I expect pressure on the rupee in the near term."
The rupee declined almost one per cent to Rs40.82 per dollar, the weakest level since September 6, before trading at Rs40.76 at 2.40 pm in Mumbai. It may drop to Rs41.40 in the next week, Mahajan said.
The rupee has slid 11 per cent against the euro this year, after advancing 0.5 per cent last year.
Overseas funds sold a daily average $83 million of local equities more than they bought in the four days through March 13, compared with daily net sales of $11 million in the week before.
Record net purchases of $17.2 billion in 2007 helped the rupee complete its best year since at least 1974.
India's Finance Minister P. Chidambaram yesterday said the impact on India from credit-market losses linked to subprime mortgages in the US will be moderate. "Our assessment indicates that the impact upon India will be a second-order impact, a moderate impact,'' he said.
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