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Indian Rupee Retreats on Speculation Cheaper Commodity Prices Spur Imports
India’s rupee fell from near a one- week high on speculation local companies stepped up imports to take advantage of a decline in global commodity prices, boosting demand for foreign exchange.
The currency weakened after gold slid 5.7 percent from the June 21 record of $1,265.30 an ounce and crude oil slumped 10.3 percent from a 19-month high of $87.15 per barrel reached May 3. India is the world’s biggest buyer of bullion and imports almost three-quarters of the oil it uses. The rupee also retreated as the Bombay Stock Exchange’s Sensitive Index lost 0.7 percent.
“The rupee has been pulled under by some commodity-related dollar demand, particularly driven by gold imports,” said Sudarshan Bhatt, chief currency trader at state-owned Corporation Bank. “The weak trend in stocks isn’t helping either.”
The currency declined 0.2 percent to 46.765 per dollar as of the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. It yesterday strengthened 0.8 percent, the most in five weeks, and touched a one-week high of 46.64 as the central bank raised its benchmark reverse-repurchase rate by half a percentage point to 4.5 percent. All 20 economists surveyed by Bloomberg predicted a quarter-point increase.
Offshore forwards contracts indicated the rupee will trade at 47.35 per dollar in three months, compared with expectations for a rate of 47.21 yesterday. Forwards are agreements to buy or sell assets at a set price and date and offshore contracts are non-deliverable, meaning they are settled in dollars.
The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials fell 0.8 percent yesterday, retreating from the highest level since May 4.
To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net
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