India’s rupee completed the biggest weekly drop since June on concern gains in crude prices will widen the current-account deficit of the nation that imports about 80 percent of its oil.
Brent futures jumped 8.4 percent this month, after climbing 7.3 percent in July, according to data compiled by Bloomberg. A recent rise in fuel costs is an inflation risk, Subir Gokarn, a deputy governor at the central bank, said yesterday.
“The sharp increase in crude prices will increase demand for dollars and pressure the current-account deficit,” said Krishnamurthy Harihar, a Mumbai-based treasurer at FirstRand Ltd. (FSR) “High inflation will also deter foreign fund inflows.”
The rupee declined 0.8 percent this week to 55.7450 per dollar in Mumbai, the biggest drop since the five-day period ended June 22, according to data compiled by Bloomberg. The currency was little changed today.
One-month implied volatility, a measure of exchange-rate swings used to price options, rose 20 basis points, or 0.20 percentage point, this week to 10.40 percent. It was little changed today.
The shortfall in the current account, the broadest measure of trade, widened to a record 4.2 percent of gross domestic product in the year through March 2012 from 2.7 percent in the previous 12 months, according to the Reserve Bank of India.
India’s benchmark price index rose 6.87 percent in July from a year earlier, after gaining 7.25 percent in June, according to official data published this week. That compares with 5.2 percent in Brazil, 1.8 percent in China and 5.6 percent in Russia.
Three-month onshore rupee forwards traded at 56.75 per dollar, compared with 56.37 on Aug. 10, and offshore non- deliverable contracts were at 56.70 from 56.25 a week earlier. 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: V. Ramakrishnan in Mumbai at firstname.lastname@example.org