Bloomberg News

Indian Rupee Weakens on Concern Inflation May Prompt Asset Sales

October 13, 2011

Oct. 13 (Bloomberg) -- India’s rupee weakened, reversing gains, on concern foreign investors will sell the nation’s financial assets after Governor Duvvuri Subbarao said inflation must ease before the central bank can reduce borrowing costs.

The currency declined before a government report tomorrow that economists in a Bloomberg survey said may show wholesale prices rose 9.75 percent last month, versus 9.78 percent in August. This is sustaining pressure for higher interest rates even as consumer demand wanes and threatens growth. The rupee gained earlier on optimism policy makers will contain the debt crisis in Europe.

“It might be difficult for the currency to maintain sustained gains in the short term amid prevailing global uncertainties and rising domestic concerns around growth and inflation,” L. Subramanian, a currency analyst in Mumbai at ICICI Bank Ltd. wrote in a note today.

The rupee weakened 0.3 percent to 49.1250 per dollar in Mumbai, according to data compiled by Bloomberg.

The European Central Bank said forcing investors to take losses in euro-area bailouts risks financial stability. European Commission President Jose Barroso yesterday called for a “coordinated approach” to recapitalize the region’s banks.

Offshore forwards indicate the rupee will trade at 49.78 to the dollar in three months, compared with expectations for a rate of 49.61 yesterday. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

--Editors: Sam Nagarajan, Abhay Singh

To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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