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Rupee, Bonds Drop as Subbarao Sees No Scope for Growth Stimulus

India’s rupee and bonds fell to the lowest levels in a week after central bank Governor Duvvuri Subbarao said high inflation has reduced room for policy measures to spur the nation’s economic growth.

A government report showed today wholesale prices rose 6.87 percent in July from a year earlier, after gaining 7.25 percent in June. That is still fastest pace among the largest emerging markets. Inflation was 5.2 percent in Brazil, 1.8 percent in China and 5.6 percent in Russia last month, according to official figures.

“The Reserve Bank can’t be more hawkish,” Chong Wee-Khoon, a Hong Kong-based strategist at Societe Generale SA, wrote in a note to clients today. Steps to boost funds in the financial system are “unlikely, given inflation concerns,” he wrote.

The rupee declined 0.6 percent to 55.66 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 55.78 earlier, the weakest level since Aug. 3. One-month implied volatility, a measure of exchange-rate swings used to price options, fell five basis points, or 0.05 percentage point, to 10.10 percent.

Three-month onshore rupee forwards traded at 56.78 per dollar, compared with 56.45 yesterday, and offshore non-deliverable contracts were at 56.69 from 56.36. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

The Reserve Bank of India held its repurchase rate at 8 percent, the highest level for a policy benchmark among major Asian economies, and raised its inflation estimate for the fiscal year through March 2013 to 7 percent from 6.5 percent on July 31.

‘No Space’

“Inflation is high, oil prices, though they have come off $100 a barrel, are at elevated levels, the external sector is under stress,” Subbarao said in a speech in the southern state of Kerala yesterday. “There is just no space for fiscal or monetary response.”

The yield on the 8.15 percent notes due June 2022 rose two basis points to 8.22 percent in Mumbai, according to the central bank’s trading system. That is the highest level since Aug. 6. One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, climbed three basis points to 7.79 percent, according to data compiled by Bloomberg.

To contact the reporter on this story: Jeanette Rodrigues in Mumbai at

To contact the editor responsible for this story: James Regan at

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