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BLBG: Indian Rupee Falls to 5-Year Low as Stock Drop May Spur Outflow
By Anil Varma

Oct. 3 (Bloomberg) -- India's rupee slumped to the lowest since 2003 as stocks slid, adding to speculation investors will take money out of the nation.

The currency completed its eighth weekly loss, the longest drop since December 2005, on signs the U.S. economy is headed for a recession that may damp global growth. The rupee also fell after India's central bank said the current-account deficit widened to a record in the three months to June 30.

``There's very strong pressure on the rupee,'' said Arun Kaul, New Delhi-based treasurer at Punjab National Bank, India's third-biggest by assets. ``Capital inflows into India's economy have slowed amid the global financial crisis. Also, the current- account deficit is widening.''

The rupee fell 1 percent to 47.085 per dollar, the lowest since June 2003, as of the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. The currency lost 1.15 percent this week.

India's Sensitive Index, or Sensex, slid 4.05 percent, the most since July 15. The index has lost 38.3 percent this year, after advancing 47 percent in 2007. The MSCI Asia Pacific Index declined 2.1 percent, taking its loss this week to 7.7 percent, the most since Aug. 2007.

Overseas investors have sold Indian equities worth a record $9.2 billion more than they bought this year, according to data compiled by Bloomberg.

Current Account

India's current account shortfall, the amount by which imports exceed exports remittances and other income from abroad, increased to $10.7 billion from a $1.04 billion gap in the previous quarter, the Reserve Bank of India said Sept. 30.

The rupee also declined on speculation an inflation rate near the highest in 16 years is discouraging investors from buying local assets. Price increases erode returns from investments.

``The rupee's purchasing power is declining over time because of high inflation,'' Punjab National's Kaul said.

The rate of inflation in Asia's third-largest economy tripled this year to touch 12.63 percent, the highest since 1992, in August. The rate probably measured 12.12 percent in the week ended Sept. 20, according to a Bloomberg News survey of economists.

To contact the reporters on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.