India’s Rupee Weakens to Three-Month Low on Inflation Concern

India’s rupee dropped to the weakest level in more than three months on concern inflation will accelerate, damping demand for the nation’s assets.

The consumer-price index climbed 9.47 percent in March from a year earlier, official data showed yesterday, compared with an 8.83 percent advance in February. Reserve Bank of India Governor Duvvuri Subbarao reiterated that room for interest-rate reductions is “limited” and would depend on the inflation trend.

“The statement from the governor has shown his concern that there is every possibility the inflation rate will rise,” said Ravi Ranjit, chief manager at Federal Bank Ltd. in Mumbai. “Inflows are at risk and there is definite pressure on the rupee.”

The Indian currency declined 0.3 percent to 51.91 per dollar as of 9:49 a.m. in Mumbai, according to data compiled by Bloomberg. It touched 51.95 earlier, the weakest level since Jan. 10. The currency may today drop past the psychological barrier of 52, Ranjit said, adding the central bank might sell dollars to prevent a fall beyond 52.20 or 52.30 as this would inflate the import bill.

One-month implied volatility for the rupee, a measure of exchange-rate swings used to price options, rose 34 basis points, or 0.34 percentage point, to 9.94 percent.

The benchmark wholesale-price index rose 6.89 percent in March from a year earlier, exceeding the median 6.65 percent estimate in a Bloomberg News survey. While inflation has eased from a rate of more than 9 percent in the 12 months through November, it’s the fastest in the so-called BRIC group of emerging-market economies that also includes Brazil, Russia and China.

Six-month onshore forwards traded at 53.65 per dollar, compared with 53.44 yesterday, and offshore non-deliverable contracts were at 53.69 from 53.50. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net

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

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