Indian rupee drops as sentiment weakens

Mumbai: The Indian rupee dropped to a 13-month low on Tuesday, weighed down by concerns a slowing economy would result in less foreign inflows while uncertainty about global oil prices prompted refiners to buy dollars.

The partially convertible rupee ended at 42.10/11 per dollar, off an intraday trough of 42.2175, its lowest since mid-April 2007. It had closed at 42.05/06 on Monday.

"There is oil demand, importer demand and exporters are not selling," said Agam Gupta, head of forex trading at Standard Chartered.

Oil traded above $124 a barrel, after touching a record of $126.40 on Monday. High global oil prices raise the risk of widening India's trade deficit and putting downward pressure on the rupee.

India's trade deficit had widened 35.5 per cent to $80.4 billion in the fiscal year ended March, largely due to soaring oil prices.

Dealers said that weak factory data this week also raised worries of a slowdown in Asia's third-largest economy, reinforcing expectations the rupee may weaken further.

Industrial output grew 3.0 per cent in March from a year earlier, its weakest growth in six years as high interest rates squeezed demand for consumer goods, data showed on Monday.