BLBG: Indian Rupee Drops to Two-Week Low as Risk Aversion Mounts
By V. Ramakrishnan
Jan. 21 (Bloomberg) -- India’s rupee fell to a two-week low on speculation foreign funds will trim their holdings of local assets as interest rates are raised to contain inflation.
The currency slid for a third day as concern about Greece’s ability to pay its debt eroded demand for riskier assets. Overseas investors trimmed their holdings of India’s shares on all but one of the six trading days through Jan. 19, according to the latest available figures from the stock exchange.
“Equities are not showing any signs of recovery after the recent decline as rate increases may hurt earnings of companies,” said Vikas Babu, a currency trader at state-owned Andhra Bank. “Investors are also fleeing to safe-haven assets after the problems in Greece.”
The rupee fell 0.2 percent to 46.01 per dollar as of 10:38 a.m. in Mumbai, according to data compiled by Bloomberg. It earlier touched 46.10, the weakest level since Jan. 6. Dollar sales by exporters are limiting the rupee’s decline, said Babu.
International Monetary Fund Managing Director Dominique Strauss-Kahn said yesterday that Greece’s budget problems are serious. The nation sold bonds directly to selected investors last month, instead of offering them via auction or through a syndicate of banks, after its borrowing costs surged in the wake of three credit-rating downgrades last month.
India’s central bank is scheduled to hold a quarterly policy meeting to set interest rates on Jan. 29. Wholesale prices rose 7.31 percent in December, the most in more than a year, and Finance Minister Pranab Mukherjee said yesterday that accelerating inflation is a matter of concern.
Offshore contracts indicate bets the rupee will trade at 46.06 to the dollar in a month, compared with 45.97 yesterday. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.
To contact the reporters on this story: V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net.
