India moves to steady rupee as trade gap falls

Mumbai India's central bank moved to boost dollar supply, stepping up the fight to steady the rupee as the nation's trade deficit narrowed for a third month after higher duties curbed gold imports.

The amount of overseas income companies can hold in foreign currency has been cut to 50 per cent from 100 per cent, the Reserve Bank of India said yesterday, forcing businesses to convert earnings. The trade gap was $13.4 billion (Dh49.28 billion) last month, Commerce Secretary Rahul Khullar said in New Delhi, compared with a previously reported $13.9 billion in March.

A 33 per cent decline in gold and silver imports in April from a year earlier helped contain the value of overall inward shipments, Khullar said. The government in March doubled the tax on purchases of bullion from abroad to help pare a record trade deficit that's pressured the rupee, whose 5 per cent tumble against the dollar this quarter is the worst in Asia.

"It's still too early to say which way the rupee and gold will go," said N.R. Bhanumurthy, a New Delhi-based economist at the National Institute for Public Finance and Policy. "What happens in Europe will have a bearing on the exchange rate."

Currency, stocks

Europe's debt crisis has sapped demand for emerging-market assets and weighed on Asian shipments, with reports yesterday showing China's export growth slowed a second month in April and that Philippine overseas sales unexpectedly declined in March.

The rupee strengthened 0.7 per cent to 53.48 per dollar in Mumbai after climbing as much as 1.6 per cent following the central bank's move.

The BSE India Sensitive Index of stocks fell 0.1 per cent. The yield on the 9.15 per cent note due November 2024 rose two basis points, or 0.02 percentage point, to 8.59 per cent.

Merchandise exports rose 3.2 per cent last month from a year earlier to $24.5 billion, Khullar said, adding they may climb 10 per cent to 15 per cent in the 12 months through March 2013. He was releasing provisional data.

While overseas sales rebounded in April from a March contraction, the year-on-year growth rate is among the smallest since 2009, based on data Khullar released on April 19, signalling Europe's woes are crimping demand. Imports gained 3.8 per cent to $37.9 billion, the commerce secretary said yesterday. That's the slowest pace since October 2009, with the trade deficit narrowing for a third month.

Performance: Expansion at 6.9%

India's government estimates the nation's economy grew 6.9 per cent in the 12 months through March 2012, the least in three years, as domestic and overseas demand weakened and policy gridlock deterred investment.

Indian inflation, measured by the wholesale-price index, probably eased to a 29-month low of 6.62 per cent last month, according to a Bloomberg News survey ahead of a May 14 report.