India’s Rupee Declines to One-Month Low on Slower Equity Inflows

India’s rupee fell to the lowest level in almost a month on concern slowing capital inflows will leave the currency more vulnerable to a current-account deficit.

Overseas funds bolstered holdings of Indian stocks by $1.9 billion in March, exchange data show, after adding more than $4 billion in each of the previous three months. The shortfall in the broadest measure of trade was $32.6 billion in the quarter through December, a central bank report showed March 28. India needs a plan to tackle the deficit and the government will take steps to boost investment from abroad, Prime Minister Manmohan Singh said in New Delhi yesterday.

The rupee weakened 0.4 percent to 54.6350 per dollar as of 9:55 a.m. in Mumbai, data compiled by Bloomberg show. That is the weakest level since March 7. One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, fell five basis points, or 0.05 percentage point, to 7.81 percent.

“The rupee will likely re-test the 55 level in the coming three or four weeks,” said Jonathan Cavenagh, a strategist at Westpac Banking Corp. (WBC) in Singapore. “However, a lot of bad news is already in the price and the currency will strengthen slightly later in the year.”

Capital flows into emerging markets may be diverted to the U.S. as a recovery in the world’s largest economy gathers momentum, said Cavenagh. Gross domestic product in the U.S. rose at a 0.4 percent annual rate in the fourth quarter, up from a 0.1 percent prior estimate, a report showed last week.

The rupee will be “less sensitive” to a potential slowdown in fund flows because the Indian government will sell stakes in state-run companies to improve public finances and offset the current-account gap, said Cavenagh.

Three-month onshore rupee forwards traded at 55.71 per dollar, compared with 55.49 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.69 versus 55.43. 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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