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Indian Rupee Drops to One-Week Low on Importers’ Dollar Demand

India’s rupee fell to the lowest level in a week on speculation importers boosted purchases of the dollar to pay month-end bills.

The Reserve Bank of India today said the government’s economic policy overhaul may boost room to focus on spurring growth, while signaling the scope for monetary easing is limited by risks such as elevated inflation. The central bank will lower borrowing costs to 7.75 percent from 8 percent, according to 25 of 29 economists surveyed by Bloomberg. Three predict a reduction to 7.5 percent and one sees no change.

“We are seeing month-end demand for dollars, largely from oil companies,” said Ravi Ranjit, chief manager at Federal Bank. “Any deviation from expectations at tomorrow’s policy review would lead to a sharp move in the currency, and investors will also be focused on the tone of the statement.”

The rupee declined 0.4 percent to 53.9150 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 53.9550 earlier, the weakest level since Jan. 21.

One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, rose 20 basis points, or 0.20 percentage point, to 10 percent.

Three-month onshore rupee forwards traded at 54.90 per dollar, compared with 54.68 on Jan. 25, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 54.78 versus 54.59. 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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