Chidambaram doesn't see sharp rupee rise in 2008

By Surojit Gupta and Charlotte Cooper

NEW DELHI (Reuters) - The rupee is unlikely to appreciate as sharply this year as last year, when its gains were "extraordinary", and the economy will grow close to 9 percent, the finance minister told Reuters on Sunday.

Palaniappan Chidambaram, speaking in an interview two days after unveiling his 2008/09 budget, said he aimed to contain inflation at about 4 percent but this would depend on how world food and commodity prices panned out in the coming year.

The rupee gained more than 12 percent against the dollar in 2007, largely driven by huge capital inflows, rising interest rates and a weakening dollar, hurting some labour-intensive export sectors and complicating management of monetary policy.

"I don't know whether the rupee will appreciate but even if it does I don't think it will appreciate as sharply as it did in 2007," Chidambaram said at his residence in the capital.

"2007 was an extraordinary appreciation of the rupee."

The partially convertible rupee closed at 40.01/02 per dollar on Friday. It hit a near-decade high of 39.16 last November, driven up by portfolio inflows into the stock market, but last month slipped to a five-month low of 40.25.

The $1-trillion-dollar Indian economy is the third largest in Asia and the fastest growing major one in the world after China. Gross domestic product grew at 9.6 percent in the fiscal year 2006/07 and is on course to slow slightly to an estimated 8.7 percent in the year which ends on March 31.

The pace has been accompanied by rising inflation.