India's Rupee Falls in Longest Losing Streak Since August 2006

India's rupee fell for a fifth day, extending its losing streak to the longest since August 2006, on concern a slide in local stocks will spur investors to take money out of the country.

The currency declined the most in a month after data from the capital markets regulator showed funds based overseas increased sales of local equities this month. The rupee also weakened on concern a rally in oil prices will lift import costs, widening the trade deficit.

The rupee's trend is now closely linked to movements in the stock market, said Paresh Nayar, chief foreign exchange dealer at the Development Credit Bank Ltd. in Mumbai. The rupee has been a bit weak this week as stocks fell and flows turned negative.

The rupee declined 0.4 percent to 39.535 per dollar as of the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. That is the biggest decline since Oct. 22.

The local currency is Asia's second-best performer this year, gaining 12.1 percent. It may rise to 39.25 by year-end and 39 by the end of March 2008, according to the median estimate in a Bloomberg News survey.

The Bombay Stock Exchange's Sensitive Index today declined 0.4 percent to the lowest in almost a month, after falling the most since Oct. 18 yesterday. The MSCI Asia Pacific Index slid 0.6 percent.

Overseas funds sold $951.9 million more Indian shares than they bought this month, after making net purchases of $5.1 billion in October and $4 billion in September, according to the Securities & Exchange Board of India.

Selling Rupees

The Reserve Bank of India has been selling rupees for dollars to stem a rally in the local currency that threatened exports. The dollar purchases boosted its foreign-exchange reserves to a record $270.2 billion on Nov. 9. The central bank bought a record $11.9 billion of foreign currency in September, its 11th straight month of purchases, it said on Nov. 13.

We do intervene in the market, but we would like the exchange rate to be market-determined, central bank Deputy Governor Rakesh Mohan said today in New Delhi.

Growth in merchandise exports slowed to an average 14.4 percent in the eight months to August from 22.4 percent a year ago, government data show.

The rupee also weakened as oil importers bought dollars, Development Credit's Nayar said. The South Asian nation depends on imports to meet as much as three-quarters of its energy needs.

Demand for dollars to pay for imports from refiners such as Indian Oil Corp. may have increased as oil rose to a record high this week. India's state-run refiners need to be protected from rising oil prices, Montek Singh Ahluwalia, deputy chairman of India's Planning Commission, said today in New Delhi.

Crude oil rose as high as $99.29 a barrel in New York yesterday as a weakening dollar boosted demand for commodities. Oil has rallied 50 percent in the past six months, according to data compiled by Bloomberg.

India's trade shortfall averaged $6.2 billion a month in the fiscal year started in April, from $4.3 billion in the year- earlier period, according to government data.

Source - Bloomberg