Rupee falls most in a month as foreign funds sell shares

The rupee fell the most in more than a month on speculation foreign investors are pulling money from the country’s share market on concern economic growth will slow as interest rates climb.

The currency weakened for a second day as exchange data showed global funds sold $117 million more Indian equities than they bought in the first two days of this week, taking total net sales for 2011 to $1.4 billion. India’s economic expansion may slow as interest rates increase, Credit Suisse Group AG said in a report released yesterday.

The rupee declined “because of weakness in equities,” said Vikas Babu, a currency trader at state-owned Andhra Bank in Mumbai. “Inflation is hitting the economy badly. The rupee has scope to weaken further as we see flows of funds weakening.”

The rupee dropped 0.5 per cent, the most since January 5, to 45.73 per dollar as of the 5 pm close in Mumbai, according to data compiled by Bloomberg. The currency has lost 2.2 per cent this year as the Bombay Stock Exchange’s Sensitive Index declined by 15 per cent.

11-year bonds gain
11-year bonds gained for a third day, pushing yields to the lowest level in a week, on speculation demand for the securities will improve as a cash crunch at the nation’s banks eases.

Average daily borrowings by the nation’s lenders from the central bank declined to Rs 64,700 crore ($14.2 billion) this month from Rs 91,300 crore in January, data from the Reserve Bank of India (RBI) show, indicating cash availability at banks is increasing. Bonds also rose on speculation investors will seek the perceived safety of debt after the Bombay Stock Exchange’s Sensitive Index slid by more than 14 per cent this year.

The yield on the 8.13 per cent note due September 2022 dropped two basis points to 8.20 per cent at the 5 pm close in Mumbai, according to the central bank’s trading system. That is the lowest level since February 3. A basis point is 0.01 percentage point.

Bonds also advanced as a government report showed food inflation slowed. An index measuring wholesale prices of agricultural products rose 13.07 per cent in the week ended January 29 from a year earlier, the commerce ministry said on Thursday. The gauge gained 17.05 per cent the previous week.

Call money rate recovers
The call money rate finished higher at 6.60 per cent from yesterday's closing level of 6.50 per cent. It moved in a range of 6.65 per cent and 6.50 per cent. The Reserve Bank of India (RBI) under the Liquidity Adjustment Facility purchased securities worth Rs 45,405 crore from 27 bids at the one-day repo auction at a fixed rate of 6.50 per cent, while sold securities worth Rs 400 crore from one bid at the one-day reverse repo auction at a fixed rate of 5.50 per cent.