Monday, March 2, 2009

Rupee at all-time low at 51.80/$; Citi sees 54/$ ahead

India’s rupee slid to a record low as mounting global stock losses added to concern investors will pull money out of riskier emerging-market assets.

The currency extended a two-week slump on speculation Standard & Poor’s will soon cut the nation’s debt rating to junk. The rupee also fell on concern the current-account deficit will widen from a record as exports decline amid a deepening global economic slump. The MSCI Asia Pacific Index dropped 3 percent after the U.S. Standard & Poor’s 500 Index lost 11 percent last month.

“There’s a lot of pressure on the rupee as portfolio investments are falling amid the worsening global equity prospects,” said Sanjay Arya, Mumbai-based treasurer at state- owned Bank of Maharashtra. “A rating downgrade by S&P is feared. In addition, the outlook for exports looks quite bleak.”

The rupee slid 1.3 percent to an all-time low of 51.81 per dollar as of 9:55 a.m. in Mumbai, according to data compiled by Bloomberg.

Offshore contracts indicate traders bet the rupee will trade at 52.00 to the dollar in a month, compared with expectations for a rate of 51.44 on Feb. 27. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.

Dumping Equities

Funds based abroad sold $1.65 billion more Indian equities than they bought this year, adding to 2008’s record $13.3 billion in net sales, according to data released by the Securities and Exchange Board of India. The Bombay Stock Exchange’s Sensitive Index has dropped 7.8 percent this year, following a record 52 percent slide in 2008.

S&P last week lowered its outlook on India’s credit rating to negative from stable, saying government spending plans to shield the economy from the global recession and win voter support in elections were “not sustainable.” The company rates India’s debt BBB-, the lowest investment grade.

Asia’s third-biggest economy expanded 5.3 percent last quarter from a year earlier, the slowest pace in five years, a government report showed on Feb. 27.

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