Rupee Has Worst Week in a Month on Stalled U.S. Budget Talks

India’s rupee completed its biggest weekly drop in more than a month on concern stalled U.S. budget talks will damp demand for riskier assets.

House Republican leaders canceled a planned vote yesterday on Speaker John Boehner’s plan to allow higher tax rates on annual incomes of more than $1 million, as lawmakers seek to avert more than $600 billion in automatic spending cuts and tax increases that are set to start in January. India’s central bank refrained from lowering interest rates at a Dec. 18 review.

The rupee is affected by “an uncertain U.S. budgetary deal, which is less than two weeks away from its deadline,” Pramit Brahmbhatt, Mumbai-based chief executive officer at Alpari Financial Services India Ltd., wrote in an e-mail today. “The month-end and quarter-end importer demand for dollars continues to weigh” on the currency, he said.

The rupee declined 1.1 percent this week to 55.07 per dollar in Mumbai, the biggest drop since the five days through Nov. 9, according to data compiled by Bloomberg. The currency fell 0.4 percent today and has lost 3.6 percent this year after plunging 16 percent in 2011.

One-month implied volatility, a gauge of expected moves in exchange rates used to price options, rose five basis points, or 0.05 percentage point, from Dec. 14 to 10.10 percent. The rate, which fell 10 basis points today, has dropped 190 basis points in 2012.

The Reserve Bank of India kept the benchmark repurchase rate at 8 percent and unexpectedly left banks’ cash-reserve requirements unchanged, instead of a cut predicted by economists in a Bloomberg survey. The monetary authority said focus must increasingly shift to growth “from this point onwards.”

The finance ministry said on Dec. 17 that 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.

Three-month onshore rupee forwards traded at 56.07 per dollar, compared with 55.78 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 56.00 versus 55.69. 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: James Regan at jregan19@bloomberg.net

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