Indian rupee falls on global risk aversion; policy reforms key

MUMBAI, July 20 Fri Jul 20, 2012 5:34pm IST

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MUMBAI, July 20 (Reuters) - The Indian rupee fell on Friday, snapping three successive weeks of gains, as risk aversion pummeled global risk assets such as the euro, though buying of the local unit ahead of an auction of debt limits to foreign investors kept losses in check.

The rupee accelerated losses in the afternoon session as the euro slumped, victim of a steady stream of negative news from the euro zone, including that Spain's Valencia region would seek central government help to repay debt.

Global risk sentiment will continue be key for the rupee next week, although investors are also eyeing any possible policy reforms from the government after the presidential election results are out on Sunday.

Hikes in diesel prices to cut the ballooning subsidy bill and allowing foreign investment into multi-brand retail are among the measures India is expected to push in the near term.

Worries about India's ability to meet its fiscal deficit target of 5.1 percent and slumping growth have been key factors behind the rupee's slump to a record low late last month.

"I expect the rupee to appreciate in future. The government may come out with reform measures very soon to reduce the deficit and encourage inflows," said Ssharad D Pawaar, chief executive at SPFX India, a forex advisory firm.

He expect the dollar/rupee to trade below 54 in the next 1-2 months.

The partially convertible rupee closed at 55.32/33 per dollar, as per the SBI closing rate, weaker than its close of 55.12/13 on Thursday.

The local currency fell 0.3 percent during the week.

Broader losses were cut on dollar sales, believed to come from foreign institutional investors planning to bid for the auction of unused debt limits on government and corporate bonds later in the day.

The one-month offshore non-deliverable forward contracts were around 55.57 while the three-month was at 56.19.

In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and United Stock Exchange all closed at around 55.39 with the total traded volume at around $3.8 billion. (Editing by Rafael Nam)

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