Rupee posts April's biggest drop

The rupee weakened the most this month today on speculation that the slowing economic growth would discourage overseas investors from buying the nation’s assets.

The currency dropped for a third day, the longest stretch of losses in seven weeks, as a drop in local equities added to concern that global funds would scale back purchases of shares. India’s economy may have expanded 6.6 per cent in the 12 months ended March 31, the slowest pace in six years, the central bank said in a report today, citing forecasts it had compiled from 14 agencies including the World Bank.

“The rupee will maintain a weakening bias in the medium term because of the poor economic outlook,” said K V Mallik, treasurer at state-owned UCO Bank in Kolkata. “Although equities have shown some recovery of late, markets are going to remain volatile for some time.”

The rupee fell 0.9 per cent to 50.325 a dollar at close in Mumbai. That is the lowest closing level since April 2. The currency has gained 0.8 per cent this month, following five quarters of losses, the longest run of declines since 2002.

India’s $1.2-trillion economy may expand as little as 5.7 per cent in the year that started April 1, the Reserve Bank of India (RBI) said, citing the survey. The bank, which will tomorrow unveil its growth forecast for the current financial year, said that a slowdown in industrial production, deceleration in private consumption and investment demand and declining exports were the “major concerns” facing the economy.

The Bombay Stock Exchange’s Sensex lost 0.4 per cent, the second decline in three days. The index has added 13 per cent this month as funds based abroad bought $1.02 billion more Indian shares than they sold, data released by the Securities and Exchange Board of India showed.

Bonds advance
The Government’s 10-year bonds rose on speculation that the central bank would lower interest rates tomorrow for the third time this year to boost economic growth.

The benchmark note maturing in 2019 climbed for a fourth day, its best winning run in three months, as economists predict RBI Governor D Subbarao to reduce the overnight lending rate by half a percentage point to 5 per cent. Rate cuts and higher government spending since October would help revive growth in the Indian economy, the central bank said today in a report.

“The trend is suggesting investors are pricing in a rate cut and more easy monetary conditions,” said S Srikumar, chief debt trader at state-owned Corporation Bank in Mumbai.

The yield on the 6.05 per cent note due February 2019 dropped two basis points to 6.39 per cent at close today. The price rose 0.13, or 13 paise per 100-rupee face amount to 97.56.

RBI may resort to “unconventional” measures to spur demand for bonds and help the government finance economic stimulus spending, according to Sydbank A/S and Aberdeen Asset Management. Policy makers need to curb borrowing costs as the government supports an economy growing at the slowest pace in six years, said Phillip Blackwood, head of emerging markets at Sydbank.