India’s RBI Said to Buy Rupee as Currency Falls to 32-Month Low

India’s central bank probably bought rupees to slow a decline in Asia’s worst-performing currency as it heads toward a record low, three foreign-exchange traders with state-run banks said.

The Reserve Bank of India bought the currency when it was trading at 51.75 against the dollar in the spot market, the people said, declining to be identified because they aren’t authorized to speak to the media. The rupee fell 0.8 percent to 51.7525 at 1:41 p.m. in Mumbai heading for a low of 52.18, last seen on March 3, 2009.

A weaker currency, which has depreciated 13.6 percent this year, stokes inflation and damps demand for financial assets in the Asian nation, which imports 80 percent of its fuel. International investors reduced holdings of Indian equities by $1.7 billion from a record $104.4 billion reached in July, exchange data show.

“The recent equity outflows have worsened the dollar shortage, which ensures that the RBI has to step in,” said J. Moses Harding, executive vice president at IndusInd Bank Ltd. “The RBI would be extremely reluctant to let the rupee fall past 52 as this would worsen the inflation situation which it is trying hard to beat.”

Alpana Killawala, the spokeswoman for the Reserve Bank, was unavailable for comment.

Still, the Reserve Bank’s ability to intervene in the foreign-exchange market is “limited,” R. Gopalan, secretary of economic affairs in the finance ministry, told reporters in New Delhi today.

Three-month offshore forwards traded at 52.8, compared with 52.21 on Nov. 18. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

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