The rupee swung between gains and losses, trading 0.2 percent off an all-time low, as concern U.S. policy makers will pare stimulus countered optimism India’s government will allow more overseas investments.
The rupee fell 0.1 percent to 58.8550 per dollar as of 10:08 a.m. in Mumbai, according to data compiled by Bloomberg, after rising as much as 0.3 percent. It touched a record low of 58.9850 per dollar on June 11 and closed at 58.7725 yesterday.
A finance ministry panel has recommended increasing foreign investment limits in areas including defense, telecommunications and retail, said three government officials with knowledge of the matter. The rupee’s gains aren’t sustainable as investors are concerned the U.S. Federal Reserve will reduce stimulus, and the currency may weaken past 59 per dollar as India’s central bank is unlikely to defend it unless it threatens to drop beyond 60, according to IndusInd Bank Ltd. (IIB)
“The foreign direct investment news has provided some relief, but this will not stay for long as the Fed will have to signal some pullback in the quantitative easing, only the manner and timing is undecided,” said J. Moses Harding, executive vice president at IndusInd Bank in Mumbai. “This will not be good news for India.”
One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose eight basis points, or 0.08 percentage point, to 11.37 percent, data compiled by Bloomberg show.
Fed Chairman Ben S. Bernanke will speak to reporters at the end of the monetary authority’s two-day meeting today, almost a month after he said stimulus measures could be scaled back if the labor market shows sustainable improvement.
Overseas investors should be able to own all of a telecom company in India instead of the current limit of 74 percent, according to the panel’s proposals, the unnamed government officials said, asking not to be identified as the information isn’t public. The ceiling in defense should be raised to 49 percent from 26 percent and in supermarkets to 74 percent from 51 percent, they said.
Global funds have cut holdings of Indian debt by $4.7 billion from a record $38.5 billion on May 21, as the premium offered by 10-year sovereign bonds over U.S. Treasuries dropped by 34 basis points. The Fed has been buying $85 billion of bonds a month, a measure known as quantitative easing, to spur the world’s largest economy. The cash has contributed to inflows into higher-yielding emerging markets.
Three-month onshore rupee forwards fell 0.1 percent from yesterday to 59.76 per dollar, according to data compiled by Bloomberg. Offshore non-deliverable contracts fell 0.3 percent to 59.95. 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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