Biggest quarterly drop in Rupee since 2008

The rupee completed the biggest quarterly drop since 2008 on concern investors will sell emerging-market assets as Europe's policy makers struggle to stem the region's debt crisis.

The currency dropped the most in a week on Thursday as exchange data showed global funds pulled a total $5.6 billion this month from the stock markets of India, Indonesia, South Korea, Taiwan and Thailand. India's currency and bond markets will remain shut on Friday as local banks close accounts at the end of the first half of the financial year.

Global investors anticipate Europe's crisis leading to an economic slump, financial meltdown and social unrest in the next year, a Bloomberg survey found. "Till more clarity emerges from the euro zone, we will see bouts of risk aversion where currencies like the rupee are sold off," said J Moses Harding, Mumbai-based executive vice-president at IndusInd Bank. "What we are seeing is a classic case of 'buy the rumour, sell the fact'," he added.

The rupee weakened 8.8% this quarter to 48.9725 at the 5 pm close in Mumbai, the biggest drop since the collapse of Lehman Brothers Holdings in September 2008. It fell 0.5% on Thursday, the most since September 22. Offshore forwards indicate the rupee will trade at 49.68 to the dollar in three months, compared with expectations for a rate of 49.43 on Wednesday.