Rupee Declines a Second Day on Deficit, Global Growth Concerns

India’s rupee dropped for a second day after data showed the current-account deficit widened and as concern about the global economic outlook curbed demand for emerging-market assets.

Overseas investors cut their holdings of Indian equities by $626 million in the week through Sept. 28, exchange data show. India’s current-account shortfall widened to $14.1 billion in the April-June period from $5.4 billion the prior quarter, the central bank said on Sept. 30. The local currency market was shut that day as banks were closing their half-yearly accounts.

“The lack of capital inflows continues to weigh on the rupee,” Barclays Capital economists including Siddhartha Sanyal, who is based in Mumbai, wrote in a report published today. “The outlook for portfolio flows remains muted for the coming quarters as well” and the current-account deficit may be about 2.6 percent of gross domestic product in the fiscal year ending March 2012, he wrote.

The rupee weakened 0.4 percent to 49.1575 per dollar at the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. It fell 8.7 percent last quarter, the biggest drop since 1992.

The decline in the rupee in “so short a time” is a concern that reflects volatility in global financial markets, Reserve Bank of India Deputy Governor Subir Gokarn said Sept. 26. The central bank would consider intervening to smooth market moves if exchange-rate swings are judged disruptive, he said.

Greek Debt

European finance ministers meeting in Luxembourg today will grapple with how to shield banks from the debt crisis and mull a further boost to the region’s rescue fund. The Greek government said yesterday it approved 6.6 billion euros ($8.8 billion) of austerity measures. U.S. factory output grew last month at the slowest pace since July 2009, a report today may show, while the Tankan survey showed sentiment among Japan’s largest manufacturers remains worse than before the March earthquake.

Offshore forwards indicate the rupee will trade at 49.93 to the dollar in three months, compared with expectations for a rate of 49.88 on Sept. 30. 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