Bloomberg News

Rupee Drops to 1-Month Low on Concern Borrowing Costs Will Rise

October 20, 2011

Oct. 20 (Bloomberg) -- India’s rupee dropped to the lowest level in almost a month on speculation the central bank is set to raise borrowing costs for the seventh time this year, slowing economic growth and damping demand for the nation’s assets.

The Reserve Bank of India will raise its repurchase rate by a quarter of a percentage point to 8.50 percent at its policy review on Oct. 25, according to 13 of 19 analysts in a Bloomberg survey. Six expect no change. Chakravarthy Rangarajan, a top economic adviser to Prime Minister Manmohan Singh, today signaled the need for higher interest rates as food inflation reached an almost six-month high. The BSE India’s Sensitive Index of shares fell 0.9 percent.

“We now think the RBI may hike policy rates again on Oct. 25,” analysts at Goldman Sachs Group Inc., including Mumbai- based Tushar Poddar, wrote in a report published today. This threatens to push the economic growth rate lower than the bank’s expected 7 percent in the year ending March 31, they wrote.

The rupee declined 1.3 percent to 49.8075 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 49.8163 earlier, the weakest level since Sept. 23. Foreign investors sold a net $72 million worth of Indian shares this month to Oct. 19, exchange data show, the third straight month of a cut in holdings.

India doesn’t expect the rupee’s depreciation to last long, R. Gopalan, secretary, department of economic affairs in the finance ministry, said in Singapore today.

Offshore forwards indicate the rupee will trade at 50.41 to the dollar in three months, compared with expectations for a rate of 49.85 yesterday. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

Editors: Andrew Janes

--Editor: Suresh Seshadri

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

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net


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