Bloomberg News

India Rupee Snaps Three-Day Gain as Oil Stokes Inflation Concern

February 27, 2012

India’s rupee snapped a three-day gain on speculation a rally in oil prices will spur inflation and threaten efforts to boost economic growth.

Crude oil for April delivery traded at $108.55 a barrel in New York and has gained 10 percent this month. Wholesale prices rose 6.55 percent in January from a year earlier from 7.47 percent in December, official data show. The current-account deficit will widen to 3 percent of gross domestic product in the year ending March 31, Chakravarthy Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said last week. That compares with 2.6 percent the previous year.

“Oil prices will pressure the rupee both on the inflation front as well as because of the country’s current-account deficit,” said Sailesh K. Jha, Singapore-based head of Asia markets strategy at Skandinaviska Enskilda Banken AB. “I don’t see any room for repurchase-rate cuts.”

The rupee declined 0.6 percent to 49.2350 per dollar in Mumbai, according to data compiled by Bloomberg.

The currency’s losses could be limited as overseas investors buy the nation’s bonds ahead of a month-end deadline, according to Alpari Financial Services. The Securities & Exchange Board of India auctioned $5 billion of corporate debt- purchase quotas on Nov. 30 to foreigners, who must utilize the allocations by Feb. 28 or let them expire.

Three-month onshore rupee forward contracts traded at 50.31 a dollar, compared with 50.06 on Feb. 24, while offshore non- deliverable contracts were at 50.36 from 50.09. Forwards are agreements to buy or sell assets at a set price and date. Non- deliverable contracts are settled in dollars.

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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