India’s rupee dropped to the lowest level in a week before a report that economists predict will show the current-account deficit widened to a record.
The shortfall in the broadest measure of trade rose to $30.5 billion in the three months through December from the previous quarter’s $22.3 billion, according to the median of 11 estimates in a Bloomberg survey before government data due 5 p.m. in New Delhi. The rupee’s losses will be limited by bunched fund inflows because of holidays yesterday and tomorrow, Andhra Bank (ANDB) said. India’s financial year ends March 31.
“The current-account concerns are still persisting, and we will see importer demand for dollars,” said Vikas Babu, a trader at the state-run lender in Mumbai. “With today effectively being the last trading day for the rupee this fiscal year, and with little or no trade globally on April 1, we should also see inflows coming in.”
The rupee was little changed from March 26 at 54.3600 per dollar as of 9:47 a.m. in Mumbai, according to data compiled by Bloomberg. It earlier declined as much as 0.2 percent to 54.4650, the lowest level since March 20. Andhra Bank’s Babu predicts the rupee will stay between 54.30 and 54.60 today. The currency, which has moved little this week and month, weakened 6.4 percent during the past year.
One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell two basis points, or 0.02 percentage point, to 7.97 percent. The rate has dropped 186 basis points in the past 12 months. The rupee’s volatility seems “too low,” considering increased risks that Europe’s debt crisis could damp inflows, Sean Yokota, head of Asia strategy at Skandinaviska Enskilda Banken AB (SEBA), wrote in a March 27 report.
The yield on the 8.15 percent bonds due June 2022 fell one basis point to 7.98 percent today, according to the central bank’s trading system. The rate on the benchmark 10-year note, which has dropped 56 basis points in the past year, rose two basis points this week and 11 basis points this month after the central bank on March 19 lowered interest rates for the second time in 2013 and said room for more easing is “quite limited.”
The debt sell-off “is overdone,” according to Barclays Plc, which on March 26 recommended buying the benchmark note and targeting a drop in yield to 7.40 percent by the end of September. The rupee will be relatively stable, ending 2013 at 55, according to the U.K. bank, which says investors should refrain from hedging positions.
All restrictions and sub-limits governing foreign funds’ purchases of Indian government and corporate notes will be removed from April 1, while keeping the overall cap at $25 billion for sovereign debt and $51 billion for securities issued by companies, Finance Minister Palaniappan Chidambaram said in New Delhi on March 23. A new “on tap” system will replace the existing quota auction procedure, he said.
The move comes as the government estimates India will need more than $75 billion of foreign capital the next financial year to fund the current-account shortfall. The gap is a “greater worry” than the budget deficit, Chidambaram said Feb. 28.
Three-month onshore rupee forwards traded at 55.38 per dollar, compared with 55.36 on March 26, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.34 versus 55.41 yesterday. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
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