Bloomberg News

India’s Rupee Tumbles to Record Low as Industrial Output Shrinks

December 12, 2011

Dec. 12 (Bloomberg) -- India’s rupee tumbled to a record low after industrial production declined for the first time in more than two years.

The currency fell 1.5 percent, the most in three weeks, as the Central Statistical Office said factory output shrank 5.1 percent in October from a year earlier, compared with the median estimate for a 0.7 percent contraction in a Bloomberg News survey. That was the first drop in output since June 2009. The Reserve Bank of India sold dollars today to curb the rupee’s slide, according to IndusInd Bank Ltd.

“The bearish sentiment is very strong and there is nothing going for the rupee,” said J. Moses Harding, a Mumbai-based executive vice president at IndusInd. “The RBI has been intervening intermittently today at various levels.”

The rupee declined to 52.8350 per dollar in Mumbai, from 52.0425 on Dec. 9, according to data compiled by Bloomberg. It fell to an unprecedented low of 52.84 earlier, breaching the previous record of 52.73 on Nov. 22. The currency may fall to 54 if the euro, currently trading at $1.3255, declines to $1.30, Harding predicts.

The Reserve Bank “does not comment on day-to-day market movements,” Mumbai-based spokeswoman Alpana Killawala said. The central bank sold $943 million of foreign currency in October, compared with $845 million in the previous month, according to a monthly bulletin released on its website today.

The rupee has lost 15.4 percent this year, the worst performance among Asian currencies.

’Risk Aversion’

The rupee also fell as investors sought the dollar’s relative safety on concern European leaders will struggle to contain their region’s debt crisis. The Dollar Index, which tracks the U.S. currency’s performance against six major trading partners, rose 0.7 percent.

The BSE India Sensitive Index of shares fell the most in Asia today as exchange data showed foreign investors cut holdings of local shares by $148 million this year through Dec. 9, after adding $29 billion in 2010.

“The recent risk aversion in global financial markets has exposed the vulnerability of India’s macro conditions,” Morgan Stanley’s Hong Kong-based economist Chetan Ahya, wrote in a report published today. “Both trade and capital flows will likely maintain their downward pressure on the currency.”

Morgan Stanley estimates the Indian currency will fall to 54.80 by the second quarter of 2012.

Three-month offshore rupee forwards traded at 53.75 to the dollar, compared with 53.25 on Dec. 9. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

--With assistance from Manish Modi in New Delhi. Editors: Anil Varma, Arijit Ghosh

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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