Rupee Falls For 2nd Session; Inflation Darkens Outlook

Mumbai - The rupee fell for a second successive session on Monday after inflation data was stronger than expected, pushing back hopes for a rate cut that investors had hoped would help boost growth and spark further foreign flows into equity markets.

The wholesale price index rose 7.8 percent in September from a year ago, data on Monday showed, marking a 10-month high and undermining the government's push for the Reserve Bank of India to lower interest rates.

The prospect the central bank will remain on hold, despite Finance Minister P. Chidambaram's pressure, clouds the outlook for markets considerably after the rupee and domestic stocks had rallied last month, while foreign investor flows had surged.

The local currency has already seen lacklustre performance in recent days, posting its biggest weekly loss in three-and-half months last week, as the impact from last month's government fiscal and economic reforms fade.

"The inflation numbers are rupee negative. We have to wait and see whether the government announces any further measures. Otherwise, I expect the rupee to be range-bound in a 52.75-53.20 band to the dollar," said Naveen Raghuvanshi, associate vice president at Development Credit Bank.

The partially convertible rupee closed at 53.0150/0250 per dollar, down from its previous close of 52.8050/8150, as per the State Bank of India closing rate.

The September inflation data could recalibrate expectations ahead of the Reserve Bank of India's policy review on October 30.

Nomura said it expects the central bank to hold rates, predicting food and the overall wholesale price index could "inch higher" in the coming quarter due to the second-round impact of the diesel hikes last month.

However, RBS saw "scope" for the RBI to cut rates by 25 basis points this month, saying the acceleration in food prices had eased, while noting a hike in fuel prices had been the key reason behind September's stronger-than-expected inflation.

Global factors will also be key for the rupee, especially as markets await clarity on whether Spain will request a bailout.

In the offshore non-deliverable forwards market, the one-month contract was at 53.22 and the three-month at 53.72.

In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed at around 53.03 with a total traded volume of around $5.4 billion.

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