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Rupee Approaches Record Low as Intervention Ability ‘Limited’

India’s rupee dropped past 52 a dollar, approaching a record low, after the government signaled the central bank may not sell dollars “aggressively” to stem the local currency’s depreciation.

The rupee fell the most in two months after R. Gopalan, secretary of economic affairs in the finance ministry, said the central bank’s ability to intervene in the foreign-exchange market is “limited.” The Reserve Bank of India probably bought rupees today to slow the currency’s decline, three foreign-exchange traders with state-run banks said, declining to be identified because they aren’t authorized to speak to the media.

“The RBI will not use its reserves aggressively to cause a major strengthening in the rupee,” said Ravi Ranjit, Mumbai-based chief manager at Federal Bank Ltd. “Unless we see big inflows such as increased foreign direct investment or equity purchases, the upward pressure on the dollar will stay.”

The rupee declined 1.6 percent to 52.1450 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 52.1550 earlier, the weakest level since a record low of 52.18 hit on March 3, 2009. Ranjit said there could be some resistance closer to the level, which was seen during the financial crisis that followed the collapse of Lehman Brothers Holdings Inc.

Worst Performer

The rupee, Asia’s worst performer this year, has fallen 14.3 percent as the BSE India Sensitive Index of shares tumbled 22.3 percent. A weaker currency damps demand for financial assets and stokes inflation in the 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.

Concern over the U.S. deficit and European debt have dented demand for emerging-market assets. Lawmakers in the world’s largest economy approached an impasse on budget cuts, Spain replaced its government and data signaled faltering economic growth from Japan to Singapore. The Dollar Index, which tracks the greenback’s performance against that of six major trading partners, rose 0.5 percent.

“There is a lack of appetite globally to invest in higher-risk assets,” said Thio Chin Loo, a Singapore-based senior currency analyst at BNP Paribas SA. “As of now, we cannot rule out the rupee falling to a new record low.”

Three-month offshore forwards traded at 53.05, 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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