India Rupee Drops to Two-Month Low After Funds Cut Bond Holdings

India’s rupee weakened to a two- month low after global funds cut holdings of local bonds on concern inflationary pressures in Asia’s third-biggest economy are increasing.

International investors sold $797 million more rupee- denominated debt than they bought this month, according to the Securities & Exchange Board of India. Wholesale prices rose 6.95 percent in February from a year earlier after climbing 6.55 percent in January, according to government data.

“Inflation is still under pressure and could bounce back to 8 percent,” said Nimit Parikh, a currency analyst in Ahmedabad at Edelweiss Capital Ltd. “Foreign investors can be expected to book their profits and pull back from the bond market.”

The rupee dropped 0.3 percent to 50.795 per dollar as of 9:03 a.m. in Mumbai, according to data compiled by Bloomberg. It touched 50.835, the weakest level since Jan. 18. The rupee has retreated 3.5 percent this month, the worst performance among Asia’s 11 most-traded currencies.

One-month implied volatility, a measure of exchange-rate swings used to price options, was unchanged at 9.10 percent, according to data compiled by Bloomberg.

Three-month onshore forward contracts traded at 51.78 a dollar, compared with 51.66 yesterday, and offshore non- deliverable contracts were at 51.96 from 51.68. Forwards are agreements to buy or sell assets at a set price and date. Non- deliverable contracts are settled in dollars.

To contact the reporters on this story: David Yong in Singapore at dyong@bloomberg.net.

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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