Indian Rupee Drops a Second Day as GDP Forecast Misses Estimate

India’s rupee declined for a second day as the government predicted economic growth will slow to a decade-low this fiscal year.

Gross domestic product will increase 5 percent in the year through March, below last year’s 6.2 percent and the least since 4 percent in 2002-2003, according to a Central Statistical Office statement released in New Delhi today. The median of 34 estimates in a Bloomberg News survey was 5.5 percent. Importers also stepped up purchases of the dollar to benefit from the exchange rate after the rupee earlier rose to near a three-month high, according to Federal Bank Ltd.

The below-consensus growth forecast is “negative for the rupee and overall sentiment in India,” Dariusz Kowalczyk, a senior strategist at Credit Agricole CIB in Hong Kong, said in an e-mail today.

The rupee declined 0.1 percent to 53.2200 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 52.8900 yesterday, the strongest level since Oct. 17. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 13 basis points, or 0.13 percentage point, to 9.39 percent.

The BSE India Sensitive Index of shares fell 0.3 percent after the GDP estimate was published. European Central Bank President Mario Draghi heads a meeting of policy makers today in Frankfurt, while euro-area leaders gather for a summit in Brussels.

IMF View

India’s monetary authority should refrain from cutting interest rates until inflation is contained even as the nation faces a subdued economic recovery, according to the International Monetary Fund.

GDP will climb 5.4 percent in the 12 months through March 2013, and 6 percent the following fiscal year, the Washington-based lender said in a statement released yesterday. Inflation will ease to 7.2 percent by March 2014 from 7.8 percent in March this year, while the budget deficit may be 5.6 percent of GDP this fiscal year, above the government’s 5.3 percent goal, it added.

Three-month onshore rupee forwards traded at 54.27 per dollar, compared with 54.20 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 54.13 versus 54.05. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.