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Rupee Drops to Two-Week Low as Importers Step Up Dollar Buying

India’s rupee fell to the lowest level in almost two weeks on speculation importers stepped up purchases of the dollar and as the government lowered its growth estimate for the economy.

The Finance Ministry said today gross domestic product will increase 5.7 percent to 5.9 percent this fiscal year through March, less than an earlier estimate of as much as 7.85 percent. That would be the slowest pace in a decade and in line with the central bank’s October forecast of 5.8 percent. The Reserve Bank of India will keep its benchmark repurchase rate at 8 percent tomorrow, according to 24 of 25 economists surveyed by Bloomberg. One predicts a 50 basis point cut.

Dollar-demand from importers will keep pressure on the rupee, L. Subramanian, a currency analyst at ICICI Bank Ltd. in Mumbai, wrote in a research report today. Investors are “likely to remain cautious ahead of the RBI’s policy meeting tomorrow,” he wrote.

The rupee dropped 0.7 percent to 54.8550 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 54.8950 earlier, the weakest level since Dec. 4. The currency has fallen 3.3 percent this year after plunging 16 percent in 2011. One-month implied volatility, a gauge of expected moves in exchange rates used to price options, was unchanged at 10.05 percent.

The monetary authority will lower banks’ cash reserve requirements to 4 percent tomorrow from 4.25 percent, according to 19 of 23 analysts in a separate survey. Three forecast no change and one sees a reduction to 3.75 percent. Inflation unexpectedly slowed to 7.24 percent last month from 7.45 percent in October, official data showed Dec. 14. The rate is still above the central bank’s so-called comfort zone of around 5 percent.

Three-month onshore rupee forwards traded at 55.69 per dollar, compared with 55.48 on Dec. 14, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.64 versus 55.33. 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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