BLBG: Indian Rupee Weakens as Budget Deficit May Discourage Investors
India’s rupee fell on speculation investors will pare holdings of local assets after the government said its budget deficit will more than double in the year ending March 31.
The currency weakened as the South Asian nation’s budget shortfall may rise as high as 6 percent of its gross domestic product, compared with an earlier estimate of 2.5 percent, as it spends more to counter the deepest economic slump in six years. The Bombay Stock Exchange Sensitive Index lost 3.4 percent.
“India’s fiscal deficit situation is in no way encouraging and that could put pressure on the rupee,” to weaken, said Roy Paul, assistant manager of treasury at Federal Bank Ltd. in Mumbai.
The rupee declined 0.3 percent to 48.83 per dollar at the 5 p.m. close in Mumbai, according to data compiled by Bloomberg.
The currency may trade between 48.50 and 49.25 in the coming days, according to Paul. The median estimate of 25 strategists and economists surveyed by Bloomberg is for the rupee to weaken to 49 by the end of March.
The government plans additional expenditure of 200 billion rupees ($4.1 billion) this fiscal year to fund the two economic stimulus packages it unveiled in the past two months.
India raised its borrowing target for the current fiscal year by 80 percent to a record 2.61 trillion rupees, according to the government’s interim budget presented today. It plans to raise 3.62 trillion rupees selling bonds in the fiscal year that starts April 1.
Slowing Growth
James McCormack, head of Asia sovereign ratings at Fitch Ratings in Hong Kong, said failure to cut the deficit “could undermine” India’s economic growth prospects and put at risk its ability to continue to attract capital. The government has said growth in the current financial year may slow to 7.1 percent, the weakest since 2003.
The rupee fell 19 percent last year as overseas funds pulled out $13.3 billion from the nation’s stock market. Foreign investors have sold a net $969 million this year.
Offshore contracts indicate traders bet the rupee will trade at 49 to the dollar in a month, compared with expectations for a rate of 48.83 on Feb. 13. 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.
