Marketmen said equity markets are expected to open lower, in tandem with other Asian markets, thus leading to heavy capital outflows
Mumbai: The Indian rupee dropped to a five-week low on Tuesday as further falls in local and Asian shares raised concerns of the recent strong foreign fund inflows could be reversed.
At 10:45am, the partially convertible rupee was at Rs48.85/86 per dollar, compared with Monday’s close of Rs48.62/63. In opening deals it touched Rs48.90, its lowest since 15 May, at which it was down 3.7% in June.
“With equity markets around the world tumbling, there is concern about dollar inflows,” a dealer with a private sector bank said.
Indian shares fell 2% early on Tuesday as investor confidence across Asia was dented by renewed concerns about the global economy. At 10:40am, the 30-share BSE index had pared the fall to be down 1%.
Foreign portfolio flows into stocks of of about $7.5 billion since mid-March have been a key driver for the rupee, but the fall in the stock market since 10 June has weakened support.
One-month offshore non-deliverable forward contracts were quoting at Rs48.90/49.00, slightly weaker than the spot rate.
The dealer said the rupee was likely to trade in a Rs48.80-90 range during the day, and expected it to weaken to Rs49.50 by the budget on 6 July.
Traders said there were concerns the government lacked the political will to contain the fiscal deficit, which could hurt the economy.
Analysts estimate the fiscal deficit will overshoot a forecast of 5.5 percent of gross domestic product made in the interim budget for 2009/10 budget in February.
The dollar index, a gauge of the US unit’s performance versus majors, was down 0.08% at 0511 GMT, ahead of the US Federal Reserve’s two-day policy meeting.
