Rupee drops to one-week low

The rupee touched a one-week low on speculation importers were buying dollars before European leaders gather to work out a plan aimed at preventing their debt crisis from spreading.

The Bombay Stock Exchange’s Sensitive Index of shares fell after Reserve Bank of India Deputy Governor Subir Gokarn yesterday indicated the central bank would refrain from cutting the amount lenders need to set aside as reserves. Imports rose 21.7 per cent in October from a year earlier, compared with 17.2 percent the previous month, official data show.

The rupee declined 0.1 per cent to 51.76 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 51.9100 earlier, the weakest level since November 30.

“If a deal is not reached in Europe this week, there would be a major sell-off across markets, and so importers are cautiously buying dollars today,” said Vikas Babu, a Mumbai-based currency trader at state-owned Andhra Bank. “There is also the concern that capital inflows might slow.”

The European Central Bank may delve deeper into its toolbox to stimulate bank lending and fight off a recession at a meeting in Frankfurt on Thursday. Europe’s leaders would convene in Brussels for talks to frame the fifth ‘comprehensive’ solution in 19 months to a debt crisis that’s left Germany and France facing the threat of losing their AAA ratings from Standard & Poor’s.

Three-month offshore rupee forwards traded at 52.83 to the dollar, compared with 52.57 yesterday.

Bonds firm up
Government bonds firmed up on good buying support from banks and companies. The 8.79 per cent government security maturing in 2021 recovered to Rs 101.78 from Rs 101.28 yesterday, while its yield declined to 8.52 per cent from 8.59 per cent. The 9.15 per cent government security maturing in 2024 rose to Rs 103.73 from Rs 103.26, while its yield fell to 8.66 per cent from 8.72 per cent previously.

Call rate stable
The call rate ended stable at the overnight call money market on Thursday on alternate demand and supply. The rate moved in a range of 8.70 per cent and 8.50 per cent before closing at its overnight closing level of 8.70 per cent.