May 13, 2008	Tuesday	Jamadi-ul-Awwal 7, 1429

MUMBAI, May 12: The Indian rupee weakened past 42 per dollar for the first time in more than a year on Monday after data showing factory output grew at its slowest in six years raised concerns about a slowdown in the economy.

The data sparked dollar buying by foreign and private banks, which then triggered stop-loss orders to exit positions based on the dollar weakening that accelerated the rupee’s fall.

Support for the currency was already fragile as record oil prices have boosted dollar demand from refiners, and last week’s stock market losses had raised concerns about foreigners withdrawing investment funds.

The partially convertible rupee ended at 42.05/06 per dollar, more than 1 per cent down from Friday’s close of 41.60/61. It has fallen 3.4 per cent since May 2 to its lowest since April 2007.

Industrial output grew 3.0 pc in March from a year earlier, well below market forecasts and raising worries about growth at the same time as inflation has risen to 3—year highs.

The numbers have raised some doubts on the overall growth prospects in the coming months, and good dollar demand has seen it triggering some stop-losses, said V. Rajagopal, head of currency trading at Mumbai-based Kotak Mahindra Bank.

The rupee has lost 6.3 pc against the dollar in 2008 to be Asia’s weakest currency behind the Korean won.

Oil companies have also jumped in and exporters are holding back on their dollar holdings on expectations the rupee may weaken some more, said Rajagopal, who expects the rupee to weaken to a 42.30-42.50 band in the near term. Traders said following the rupee’s sharp fall there was talk about some large hedge funds exiting some large short-dollar positions by buying dollars in the market.

Without a current account surplus it is perhaps too much o expect the Indian central bank to be able to manage a currency with trend appreciation in the current environment, UBS economist Philip Wyatt said in a recent note.

One-month offshore non-deliverable forwards were quoting at 42.13/42.23 per dollar, weaker than the onshore rate, and the six-month forward dollar premium was quoting at 0.3275/0.3450, above 0.23/0.25 on Friday.

—Reuters