Rupee declines a second day on deficit concerns

The rupee dropped for a second day after data showed the current-account deficit widened and concern about the global economic outlook curbed demand for emerging-market assets.

Overseas investors cut their holdings of Indian equities by $626 million in the week through September 28, exchange data show. India’s current-account shortfall widened to $14.1 billion in the April-June period from $5.4 billion the prior quarter, the central bank said on September 30. The local currency market was shut that day as banks were closing their half-yearly accounts.

“The lack of capital inflows continues to weigh on the rupee,” Barclays Capital economists including Siddhartha Sanyal, who is based in Mumbai, wrote in a report published on Monday. “The outlook for portfolio flows remains muted for the coming quarters as well” and the current-account deficit may be about 2.6 per cent of gross domestic product in the fiscal year ending March 2012, he wrote.

The rupee weakened 0.4 per cent to 49.1575 per dollar at the close in Mumbai, according to data compiled by Bloomberg. It fell 8.7 per cent last quarter, the biggest drop since 1992.

The decline in the rupee in “so short a time” is a concern that reflects volatility in global financial markets, Reserve Bank of India Deputy Governor Subir Gokarn said September. 26. The central bank would consider intervening to smooth market moves if exchange-rate swings are judged disruptive, he said.

CALL RATE STEADY
The call rates ended stable on the overnight money market on Monday. The overnight call rate finished stable at its previous closing level of 8.25 per cent. It moved in a range of 8.30 per cent and 8.10 per cent.