The rupee fell to a two-week low on speculation that foreign funds will trim their holdings of local assets, as interest rates are raised to contain inflation.
The currency slid for a third day, as concern about Greece’s ability to pay its debt eroded demand for riskier assets. Overseas investors trimmed their holdings of India’s shares on all but one of the six trading days through January 19, according to the latest available figures from the stock exchange.
“Equities are not showing any signs of recovery after the recent decline, as rate increases may hurt earnings of companies,” said Vikas Babu, a currency trader at state-owned Andhra Bank. “Investors are also fleeing to safe-haven assets after the problems in Greece.”
The rupee fell 0.3 per cent to 46.05 a dollar as of the 5:00 pm close in Mumbai, according to data compiled by Bloomberg. It earlier touched 46.14, the weakest level since January 6. Dollar sales by exporters were limiting the rupee’s decline, said Babu.
International Monetary Fund Managing Director Dominique Strauss-Kahn said yesterday that Greece’s budget problems were serious. The nation sold bonds directly to selected investors last month, instead of offering them via auction or through a syndicate of banks, after its borrowing costs surged in the wake of three credit-rating downgrades last month.
India’s benchmark stock index fell the most in two months on Thursday after food inflation stayed above 15 per cent, adding pressure on the central bank to tighten monetary policy.
Bonds gain as easing food inflation may delay tightening India’s 10-year bonds gained, pushing yields to the lowest level this year, on speculation that slowing food price increases may encourage the central bank to refrain from raising interest rates.
The commerce ministry reported on Thursday that a gauge of food costs, a component of the primary articles index, rose 16.81 per cent in the week ended January 9, following a 17.3 per cent gain in the previous week.
“The moderation in food inflation is going to encourage bond investors in the short term,” said Srinivasa Raghavan, head of treasury at IDBI Gilts in Mumbai. “Yields are going to ease further in the coming days.”
