Rupee plunges to lowest since April

mumbai — The rupee’s status as one of the most-loved Asian currencies is being tested by India’s faltering economy and signs that its markets are overheating.

The currency slumped to its lowest since early April on Friday, weakening for a second day, amid worries that public finances will worsen as Prime Minister Narendra Modi’s government considers measures to boost growth after last quarter’s shock slowdown. Foreigners are dumping stocks at the fastest pace this year as weak earnings fail to justify the boom in share prices.

“The risk for the rupee is clearly to the downside for the next few months,” said Nizam Idris, Singapore-based head of foreignexchange and fixed-income strategy at Macquarie Bank Ltd. “It has gone a little flat as the Modi-motivated rally fades. This talk of stimulus, which may put to question commitments to fiscal consolidation, in itself reflects government concern that growth is going off track.”

That’s a turnaround for the rupee, which was one of Asia’s bestperforming currencies in the first half of 2017. Its 4.4 per cent gain this year has been fuelled by global funds, drawn by the region’s highest bond yields, a sound economy and optimism that Modi will initiate more policy changes after implementing a nationwide sales levy — touted as independent India’s biggest tax reform.

NatWest Markets Ltd is cautious on the rupee going into the fourth quarter as rising inflation and the widest current-account gap in four years blur the economic outlook, while JPMorgan Chase & Co. said in a recent report that the risk-reward around owning the currency is not as “compelling” compared with other regional exchange rates. Foreign funds have sold a net $761.6 million of Indian stocks in September, after pulling out $1.73 billion last month, which made for the biggest withdrawal since November. That’s at a time when India’s restrictions on overseas investment in its bonds are stalling inflows into debt. — Bloomberg