Rupee falls; government says economy may slow more than expected

A shopkeeper counts currency notes inside his shop in Jammu July 14, 2010.

MUMBAI (Reuters) - The rupee fell on Thursday after a government projection estimated economic growth in the fiscal year will be worse than expected, raising concerns about how it would fund its fiscal and current account deficits.

The government said the country's slowest growth in a decade could be much worse than earlier projections. Preliminary data released on Thursday showed the economy set to have grown 5.0 percent in the fiscal year ending next month, underscoring the urgent need for reforms to boost growth.

The concerns about slowing growth come even as a continued risk appetite has ensured large capital inflows into the equities markets, most recently into state-run power utility NTPC's share sale.

The $2.1 billion share auction in state-run power utility NTPC Ltd (NTPC.NS) was fully covered on Thursday, provisional data from the Bombay Stock Exchange showed.

However, some dealers said the advance GDP numbers should not be looked at in isolation.

"The disinvestment process, deregulation of diesel prices and also some budgetary stance may help lower CAD (current account deficit) as well as fiscal deficit. Therefore, we need to consider the bigger perspective," said Ashis Barua, a senior forex dealer at IndusInd Bank.

"In the near term, I feel one touch to 52.35-52.40 is due," he said.

The rupee will strengthen around 1 percent to 52.50 in 12 months, a Reuters poll showed.

The partially convertible rupee closed at 53.22/23 per dollar, versus its previous close of 53.155/165, a second session of falls. It traded in a 53.07-53.32 band in the session.

Onshore dollar forward premiums saw some receiving after the sharp spike to fourteen-year highs on Friday.

The 1-year forward premium eased to 351.50 points versus 355 points on Wednesday.

In the offshore non-deliverable forwards, the one-month contract was at 53.52, while the three-month was at 54.10.

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 about 53.41 with a total traded volume of $5 billion.

(Editing by Anupama Dwivedi)