Rupee decline on for second day

Rupee declined a second day on speculation traders will sell to benefit from a rise to a 16-month high this month, as the central bank stems gains to prevent a stronger currency from hurting exporters.

The currency, up 6 per cent since July 19, has failed to strengthen beyond 44, as foreign exchange reserves in the week ended February 9 rose the most since at least 1992, suggesting the central bank purchased dollars.

Refiners may also start buying the US currency at a cheaper rate to settle their month-end import bills, said Sudarshan Bhatt, chief currency trader at state-owned Corporation Bank.

"Now may be a good time for importers to buy dollars, as the strength of the rupee is almost stretched,'' Bhatt said. "There's also a bit of dollar purchases by some traders at units of overseas banks pushing the rupee lower.''

The rupee fell 0.1 per cent 44.185 against the dollar at the 5 pm close of trading in Mumbai from 44.1387 yesterday, according to data. The rupee may trade between 44.10 and 44.25 in the next two weeks, Bhatt said.

The nation's foreign exchange reserves rose more than $5 billion in the week ended February 9 to a record $185 billion, the central bank said last week.

The central bank may have stepped up purchases of dollars as the real-effective exchange rate, a gauge used to determine the value of a currency relative to those of its trading partners, rose to a year's high earlier this month.

An index compiled by JP Morgan Chase & Co that seeks to mirror that gauge rose to 109.45 on February 6, before dropping to 108.95 today.

The central bank doesn't comment on daily market operations, spokeswoman Alpana Killawala said.

A stronger currency hurts exports growth and widens the trade deficit. The difference between India's imports and exports rose to a record $6.2 billion in October.

The third-biggest US bank abandoned its call for the rupee to weaken this year, as record growth lures companies such as Fiat and Vodafone group to pour in money. India's growth in the financial year ending March 31 is likely to beat last year's record 9 per cent, according to government estimates.

Foreign direct investment may double to $12 billion in the financial year, Trade Minister Kamal Nath said on February 7. Should the central bank accelerate dollar purchases, the rupee may weaken, Agarwal said.

JP Morgan estimates the Reserve Bank may have bought more than $3.5 billion this month, almost twice its purchases in December for which data are available.