Rupee weakens on US recovery

The rupee fell to a one-week low, as an unexpected drop in US consumer spending added to signs the recovery in the world’s largest economy was stalling, hurting demand for emerging-market assets.

The currency and the Bombay Stock Exchange’s Sensitive Index declined for a second day after official data showed yesterday that personal spending fell for the first time since September 2009. Indian wholesale prices rose 9.44 per cent in June from a year earlier, exceeding 9.00 per cent for a seventh month.

The rupee declined 0.1 per cent to 44.31 per dollar at the 5 pm close in Mumbai, according to data compiled by Bloomberg. The currency touched 44.41 earlier, the weakest level since July 25.

Foreign investors increased their holdings of Indian shares by $23.6 million in the week to July 29, the least since the period ending June 10, according to exchange data. Overseas funds bought $35.7 million more shares than they sold on August 1.

Offshore forwards indicate the rupee will trade at 44.75 to the dollar in three months, compared with expectations for a rate of 44.71 yesterday. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

BONDS ADVANCE
Government bonds rose remarkably, pushing yields to the lowest level in more than a week. The yield on the 7.8 per cent bonds due April 2021 slipped one basis point, or 0.01 percentage point, to 8.42 per cent as of the 5 pm close in Mumbai.

Manufacturing grew in July at the slowest pace in 20 months, according to the Purchasing Managers’ Index published by HSBC Holdings Plc and Markit Economics on August 1. The Prime Minister’s Economic Advisory Council cut its growth forecast this week to 8.2 per cent from 9.00 per cent for the fiscal year ending March 2012.

The Reserve Bank of India raised its repurchase rate 11 times since the start of 2010 and last increased it by 50 basis points on July 26 to 8.00 per cent. But there is speculation that slowing economic growth would prompt the bank to refrain from raising interest rates too aggressively.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, declined six basis points to 8.27 per cent.

CALL RATE HIGH
The overnight call money rate finished higher at 8.10 per cent from yesterday’s closing level of 8.00. It moved in a range of 8.10 per cent and 7.50 per cent