Rupee Pares Losses

India's rupee rebounded from a 17- month low, paring losses, on speculation the central bank bought the currency to prevent declines from adding to inflation.

The rupee touched 44.15 against the dollar, the lowest level since March 16, 2007, before erasing almost all of the day's losses. The Reserve Bank of India may not allow a rapid drop in the currency as policy makers are still grappling with 16-year- high inflation and a weaker rupee will increase the cost of imports including crude oil, said Amit Garg, a currency trader at Allahabad Bank.

The currency ended 0.1 percent lower at 43.845 against the dollar at the 5 p.m. close in Mumbai, according to data compiled by Bloomberg.

India's foreign-exchange reserves fell for a fifth week through Aug. 15, the longest stretch of declines since November 2000, indicating the central bank sold dollars to support the rupee. Central banks intervene in currency markets by arranging sales or purchase of foreign exchange.

India's foreign-currency reserves dropped to $286 billion in the week ended Aug. 15 from a record $306.2 billion in May, according to data provided by the central bank.

A 60 percent surge in crude oil prices in the past 12 months pushed up the inflation rate to the highest since June 1992. Wholesale prices jumped 12.63 percent in the week ended Aug. 9 from a year earlier, government data show.

India's average monthly oil import costs rose to $8 billion this year, from $5.5 billion in 2007, trade ministry data show.

The local currency still ended the day weaker, extending yesterday's losses, on speculation refiners purchased dollars to settle month-end import bills. The currency has slumped more than 10 percent this year as global funds turned net sellers of Indian shares.

Rupee Pares Losses, Bloomberg
8/26/2008 10:12:40 AM