India’s rupee fell to a one-week low after overseas investors cut holdings of local shares on concern rising interest rates will boost costs and erode earnings at the nation’s companies. The Reserve Bank of India raised its benchmark repurchase rate to 7.25 percent from 6.75 percent today to slow inflation, the ninth increase since March 2010. Only seven of 25 economists in a Bloomberg News survey predicted the move, while the rest expected a quarter-point increase. Foreigners’ sales of Indian stocks exceeded purchases for the fifth day on April 29, the longest stretch in three months, exchange data show. “Higher interest rates will eventually hurt corporate profits and that will drag stocks and the rupee down in the longer term,” said Vikas Babu, a currency trader in Mumbai at state-owned Andhra Bank. The Indian currency dropped 0.4 percent to 44.5175 per dollar at the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. It’s advanced 0.2 percent in the past month, the second-worst performance among the 10 most-traded Asian currencies. The rupee will weaken to 45.20 in two to three months, Babu predicted. Three-year bond yields for top-rated firms have climbed to a 29-month high of 9.51 percent, according to data compiled by Bloomberg. Reliance Industries Ltd., India’s biggest company by market value, and Maruti Suzuki India Ltd., the largest carmaker, said last month that profits rose at a slower pace in the quarter ended March 31 compared with a year earlier. India’s economic expansion may slow to “around 8 percent” in the financial year that began April 1 from an estimated 8.6 percent in the previous 12 months, the central bank said. Goldman Sachs Group Inc. and Credit Suisse Group AG cut growth forecasts for Asia’s third-biggest economy last month, citing the impact of higher interest rates. ‘Hurt Economic Growth’ “The bigger-than-expected rate increase could hurt economic growth at a time when there are already signs of a moderation in industrial activity,” said Priyanka Kishore, a Mumbai-based foreign-exchange strategist at Standard Chartered Plc. India’s factory output increased an average 3.8 percent in the first two months of 2011 from a year earlier, compared with 16 percent in the same period of 2010, the latest government data show. Offshore forwards indicate the rupee will trade at 45.27 to the dollar in three months, compared with expectations of 45.01 yesterday. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars. To contact the reporters on this story: Anil Varma in Mumbai at avarma3@bloomberg.net. To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net.

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