India’s rupee forwards dropped a fourth day after the central bank refrained from easing monetary policy to support a slowing economy.
Reserve Bank of India Governor Duvvuri Subbarao kept the repurchase rate at 8 percent, according to a statement in Mumbai today. The decision was predicted by 25 of 27 economists in a Bloomberg News survey, while two expected a reduction. The monetary authority unexpectedly held the cash-reserve ratio for lenders at 4.25 percent after a cut in October and said policy focus needs to shift to growth “from this point onwards.”
“A cut in interest rates would be a positive for the rupee,” said Jonathan Cavenagh, a strategist at Westpac Banking Corp. (WBC) in Singapore. Local importers’ demand for dollars also pressured the currency lower, according to Westpac.
Three-month onshore rupee forwards declined 0.3 percent to 55.85 per dollar, according to data compiled by Bloomberg. Offshore non-deliverable contracts dropped 0.3 percent to 55.78. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
In the spot market, the rupee was little changed from yesterday at 54.8525 per dollar in Mumbai, after climbing as much as 0.3 percent earlier, according to data compiled by Bloomberg. The currency has fallen 3.6 percent this year after plunging 16 percent in 2011.
India’s finance ministry yesterday said gross domestic product will increase 5.7 percent to 5.9 percent this fiscal year through March, less than an earlier estimate of as much as 7.85 percent. That would be the slowest pace in a decade and in line with the central bank’s October forecast of 5.8 percent.
The rupee gained earlier after U.S. President Barack Obama yesterday made a new budget offer as he and House Speaker John Boehner negotiate to avert $607 billion in tax increases and spending cuts set to take effect from January. Obama’s plan would raise taxes by $1.2 trillion and increase rates for households earning more than $400,000 a year, up from $250,000, according to a person familiar with the talks.
One-month implied volatility, a gauge of expected moves in exchange rates used to price options, rose 15 basis points, or 0.15 percentage point, to 10.20 percent.
To contact the reporter on this story: Jeanette Rodrigues in Mumbai at firstname.lastname@example.org