Rupee sees highest fall in 2 months

Apr, 29 | Updated: Apr 30 2008, 06:09am hrs
Rupee fell the most in almost two months after the central bank on Tuesday said the nations current-account deficit will widen in the year through March.

The currency declined to six-week low as crude oil prices at a record high increased costs for the country that depends on imports to meet three-fourths of its energy needs. The rupee also dropped on speculation capital inflows will slow after the central bank refrained from raising interest rates today.

Oil-related dollar demand has been keeping the rupee under pressure, said LV Prasad, chief currency trader at Indusind Bank Ltd. in Mumbai. The inflow of dollars from foreign institutional investors too has slowed. The Reserve Bank of India said it sees a marginally'' higher gap in the fiscal year that started April 1. Overseas investors sold $2.7 billion in Indian shares more than they bought this year, after purchasing a net $17.2 billion in 2007, a record, according to data released by the Securities and Exchange Board of India.

Rupee also fell on speculation exporters scaled back sales of foreign exchange earned abroad to profit from a decline in the local currency. A weaker rupee boosts the earnings of exporters.

Meanwhile, bonds rallied the most in more than three years, the biggest fluctuation of any government debt market today, as the central bank kept interest rates unchanged and said growth prospects stand trimmed.

Ten-year yields fell to the lowest level in almost three weeks on optimism the Reserve Bank of India will use tools other than interest rates to cool inflation from near a 3 1/2-year high. Governor, YV Reddy told lenders for a second time in two weeks to set aside more money in reserves as a proportion of their deposits to curb growth in money supply.

Bloomberg