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Rupee Drops From Two-Week High as Importers Boost Dollar Buying

India’s rupee fell from the highest level this month, on speculation importers boosted purchases of the dollar to benefit from the exchange rate.

The currency had strengthened after official data on March 11 showed exports climbed 4.2 percent in February from a year earlier, the first increase in 12 months. Industrial production rose 2.4 percent in January, a report showed yesterday, compared with the 1.3 percent gain forecast in a Bloomberg survey of economists. The rupee’s advance will be limited by questions on policy makers’ ability to revive economic growth from the least in a decade, according to Barclays Plc.

The rupee declined 0.2 percent to 54.3075 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 54.0175 earlier, the strongest level since Feb. 28. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell eight basis points, or 0.08 percentage point, to 8.93 percent.

“Strong bids” for dollars from importers were seen once the rupee approached 54, Anindya Banerjee, a currency analyst at Kotak Securities Ltd. in Mumbai, wrote in a report today. “We expect a range of 54 to 54.50 over the near term, as going into the RBI meeting market anxiety remains high, especially after a high consumer price-inflation print yesterday.”

Consumer prices rose 10.91 percent last month, compared with a 10.79 percent increase in January, official data showed yesterday, even as wholesale-price inflation is seen easing to the slowest pace since 2009. Wholesale prices increased 6.6 percent in February, according to the median of 28 estimates in a Bloomberg survey before data due tomorrow. The Reserve Bank of India reviews monetary policy on March 19.

Going Neutral

In the budget announced on Feb. 28, Finance Minister Palaniappan Chidambaram raised spending on the poor to court support before elections, relying on higher taxes, including a surcharge on wealthy individuals, asset sales and subsidy cuts to trim the widest fiscal deficit among major emerging nations.

The budget “underwhelmed and disappointed” Brown Brothers Harriman Ltd., which is going ‘neutral’ on the rupee from ‘positive’ last month, said in a report today. The timing of further interest-rate reductions from the Reserve Bank of India is now more uncertain, according to Brown Brothers and Barclays.

“There are no overwhelming reasons to be long on the rupee, and it is not one of our favorite currencies in the region,” said Nick Verdi, a strategist at Barclays in Singapore.

Three-month onshore rupee forwards traded at 55.42 per dollar, compared with 55.39 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.33 versus 55.18. 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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