Rupee drops to eight-week low

The rupee dropped to an eight- week low, as concern of Europe’s debt crisis worsening bolstered demand for the dollar. India is expected to revise its economic growth target downward, Kaushik Basu, chief economic adviser to the finance ministry, said last week.

“Europe’s debt crisis is one reason” for the weakening currency, said Thio Chin Loo, a senior currency analyst at BNP Paribas SA in Singapore. “Rising inflation and economic growth are a concern for the rupee. The central bank raised interest rates a little more than expected in the last round.”

The rupee dropped 0.5 per cent to 45.0898 per dollar as of 9.25 am in Mumbai, according to data compiled by Bloomberg. It touched 45.0975, the weakest level since March 21.

India’s economic growth may slow to “around 8 per cent” in the year that began April 1 from an estimated 8.6 percent in the previous 12 months, the Reserve Bank of India said May 3. The country’s gross domestic product may grow as much as 9.25 percent this year, the finance ministry said in February.

Offshore forwards indicate the rupee would trade at 45.79 to the dollar in three months, compared with expectations of 45.60 at the end of last week. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

BONDS GAIN
India’s 10-year bonds rose, reversing an earlier decline, on speculation a government report will show inflation slowed last month.

Yields retreated from near a 31-month high before data from the commerce ministry due at noon in Mumbai that will show wholesale prices increased 8.50 per cent in April from a year earlier, compared with 8.98 percent the previous month, according to the median estimate of economists surveyed by Bloomberg.

“Despite an early negative reaction to the petrol price increase, an improvement in the monthly inflation number should maintain support for bonds,” said Pradeep Madhav, Mumbai-based managing director at Securities Trading Corp, a primary dealer which underwrites government debt.

The yield on the 7.8 per cent note due April 2021 fell two basis points, or 0.02 per centage point, to 8.26 per cent as of 10.50 am in Mumbai, according to the central bank’s trading system. It climbed to 8.29 per cent earlier, near the highest level for a 10-year government bond since October 2008.

CALL RATE STEADY
The call rate ended stable on overnight call money market on Monday on alternate bouts of demand and supply. The overnight call rate settled the day at its previous closing level of 7.40 per cent. It moved in a range of 7.50 per cent and 7.30 per cent.