India’s rupee dropped after the central bank cut interest rates for a second time this year and on speculation some companies bought dollars to pay for imports. The currency approached a record low on concern sliding borrowing costs will diminish the appeal of Indian assets. The rupee also weakened after the benchmark stock index slumped, fueling concern overseas investors will increase sales of Indian equities. Offshore forward contracts showed traders increased bets for further rupee weakness. “Importer demand is consistent and is keeping the broad sentiment against the rupee,” said Sanjay Arya, Mumbai-based treasurer at state-owned Bank of Maharashtra. “The interest- rate reduction has only taken away the likely support to the local currency. I expect further weakness in the rupee.” The currency fell 0.4 percent to 51.765 per dollar at the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. It touched a record-low 52.185 on March 3. Two-year Indian government debt yesterday offered 4.08 percentage points more than similar-maturity U.S. Treasuries, narrowing from as high as 7.13 percentage points in October. Sales of Indian shares by foreign funds exceeded purchases by $1.8 billion this year, adding to a record $13.3 billion in net sales in 2008, according to data provided by the Securities & Exchange Board of India. The Bombay Stock Exchange Sensitive Index, or Sensex, fell 2.1 percent, extending this year’s losses to 15 percent. It slid a record 52 percent last year. Continued Pressure “Stocks are not showing sustained gains, which suggests investors are not fully confident about their prospects,” said Roy Paul, assistant manager of treasury at Federal Bank Ltd. in Mumbai. “The rupee is under continued pressure to decline.” Standard & Poor’s on Feb. 24 cut its outlook on India’s debt to negative from stable, saying government spending plans to help shield the economy from the global recession and win voter support in elections were “not sustainable.” The nation is now more at risk of a non-investment grade credit rating. The Reserve Bank of India cut both its overnight lending and borrowing rates to unprecedented lows of 5 percent and 3.5 percent after Asia’s third-biggest economy expanded at the slowest pace in five years amid a global recession. Non-deliverable forward contracts indicate traders bet the rupee will weaken 0.7 percent to 52.14 to the dollar in a month, compared with expectations for a rate of 51.78 yesterday. 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. To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net.

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