Rupee at 13-month low as oil, slowdown weigh

MUMBAI: Rupee dropped to a 13-month low on Tuesday, weighed down by concerns a slowing economy would result in less foreign inflows while uncertainty about global oil prices prompted refiners to buy dollars.

The partially convertible rupee ended at 42.10/11 per dollar, off an intraday trough of 42.2175, its lowest since mid-April 2007. It had closed at 42.05/06 on Monday.

"There is oil demand, importer demand and exporters are not selling," said Agam Gupta, head of forex trading at Standard Chartered.

Oil, country's biggest import, traded above $124 a barrel, after touching a record of $126.40 on Monday. High global oil prices raise the risk of widening India's trade deficit and putting downward pressure on the rupee.

India's trade deficit had widened 35.5 per cent to $80.4 billion in the fiscal year ended March, largely due to soaring oil prices.

Dealers said that weak factory data this week also raised worries of a slowdown in Asia's third-largest economy, reinforcing expectations the rupee may weaken further in the coming weeks.

Industrial output grew 3.0 percent in March from a year earlier, its weakest growth in six years as high interest rates squeezed demand for consumer goods, data showed on Monday.

Citigroup expects growth to slow to 7.7 per cent in the fiscal year 2008/09, down from a government estimate of 8.7 percent for 2007/08.

The risk of a slowdown has raised concerns that foreigners may not be very keen to invest in Indian stocks, weakening a key support for the rupee.

The stock market has fallen about 17 per cent in 2008. Foreign funds have been net sellers of about $3 billion of stocks this year, a sharp turnaround from record buying of $17.4 billion in 2007.