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Indian Rupee Drops to Two-Week Low on Inflow Concerns

India’s rupee dropped to the lowest level in more than two weeks on speculation foreign investors will slow purchases of the nation’s stocks after the central bank unexpectedly kept borrowing costs unchanged.

The Reserve Bank of India’s benchmark repurchase rate will stay at 8 percent, the monetary authority said in a statement yesterday. The move was predicted by only four of 25 economists in a Bloomberg News survey. Fitch Ratings lowered the country’s credit outlook to negative from stable yesterday, citing heightened risk of deteriorating growth and limited progress in paring the budget deficit.

“India is under pressure and in a lose-lose situation,” Wee-Khoon Chong, a strategist at Societe Generale SA in Hong Kong, wrote in a research note to clients today. “Expect continued pressure on the rupee.”

The currency declined 0.1 percent to 55.97 per dollar in Mumbai, according to data compiled by Bloomberg. The currency touched 56.1250 earlier, the weakest level since June 1. One-month implied volatility, a measure of exchange-rate swings used to price options, rose five basis points, or 0.05 percentage point, to 11.75 percent.

Global funds cut holdings of Indian stocks by $179 million in the past month, according to exchange data. “While growth in 2011-2012 has moderated significantly, headline inflation remains above levels consistent with sustainable growth,” the RBI said yesterday. Official data show wholesale prices rose 7.55 percent in May, a faster pace than April’s 7.23 percent.

U.S. Stimulus

The rupee pared losses on speculation U.S. policy makers will announce fresh stimulus measures to shore up growth in the world’s largest economy. The Federal Open Market Committee will begin a two-day policy meeting today after data in the past week showed U.S. retail sales fell for a second month in May and consumer prices dropped the most in three years.

With “liquidity likely to chase safe but relatively higher-yielding assets, Asian bond markets are likely to be supported,” analysts at Barclays Plc’s investment banking unit, including Singapore-based Kumar Rachapudi, wrote in a note to clients today.

Three-month onshore currency forwards traded at 56.96 per dollar, compared with 56.92 yesterday, and offshore non-deliverable contracts were at 57.09 from 57.07. 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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