Industrial output in India rose 1 percent in August, compared with an average 7.2 percent since 2006, according to the median estimate in a Bloomberg survey before data due Oct. 12. India may lose its investment-grade rating within 24 months if growth slows and political opposition to policy overhauls increase, Standard & Poor’s said in a report received today. The rupee gained 5.1 percent against the dollar last month as the government announced measures to spur economic expansion.
“A significant part of the rupee turnaround has been sentiment driven,” said Indranil Pan, chief economist at Kotak Mahindra Bank Ltd. (KMB) in Mumbai. “We caution against equating the recent measures to a long-term panacea for weak fundamentals.”
The rupee declined 0.6 percent to 53.0600 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 53.1850 earlier, the weakest level since Sept. 27, and has dropped 2.3 percent this week. One-month implied volatility, a measure of exchange-rate swings used to price options, rose 35 basis points, or 0.35 percentage point, to 11.50 percent.
Prime Minister Manmohan Singh began pushing pro-growth measures in mid-September, ending two years of policy gridlock. His administration has reduced energy subsidies, cut taxes on overseas borrowing by companies and allowed more foreign investment in industries including retailing and airlines.
The rupee was also pressured as the International Monetary Fund cut India’s 2012 economic growth forecast yesterday to 4.9 percent from 6.1 percent, and warned today that European banks may need to sell as much as $4.5 trillion in assets through 2013 if policy makers fall short of pledges to stem the region’s fiscal crisis. That is 18 percent more than the Washington-based lender estimated in April.
Three-month onshore rupee forwards were at 54.07 a dollar, compared with 53.67 yesterday, and offshore non-deliverable contracts were at 53.87 versus 53.50. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.