India weighs rupee brake

The Reserve Bank of India says it may intervene in the currency markets to shield exporters as capital inflows this year fuelled a rally in the rupee, making it Asia's best performer in the past month.

The local currency gained 5.2 per cent in the past 30 days as global investors this year poured a record US$23 billion ($30.4 billion) into local shares and US$10 billion in rupee debt to profit from an economy growing at an annual pace exceeding 8 per cent.

The capital account showed a surplus of US$17.5 billion in the quarter to June 30, compared with a record shortfall of US$13.7 billion in its current account as imports grew faster than exports.

"It comes down to a balancing act between making sure there's enough money to finance your current-account deficit, but at the same time not do any serious damage to people whose competitiveness is undermined for no fault of their own," central bank Deputy Governor Subir Gokarn said.

India is among the latest to signal it will stem currency gains after central banks from Brazil to Israel and Thailand intervened in foreign-exchange markets.

Japan sold yen last month for the first time since 2004 and Brazil warned of a global "currency war".

Governor Duvvuri Subbarao said the Reserve Bank of India might intervene "if inflows are lumpy and volatile" and disrupt the economy.

The rupee is poised for its seventh weekly gain and closed at 44.12 to the US dollar yesterday in Mumbai. It touched 44.09 yesterday, its highest level since August 29, 2008.

- BLOOMBERG