Indian Rupee Set for Weekly Loss on Concern Outflows May Quicken

India’s rupee fell, headed for a weekly loss, on concern a potential paring of U.S. stimulus will quicken outflows from Asia’s third-largest economy, leaving the currency more vulnerable to a record current-account deficit.

In testimony over the past two days, Federal Reserve Chairman Ben S. Bernanke sought to reassure investors that even as the central bank considers a reduction in asset purchases, it has not changed its highly accommodative policy. The rupee, which has fallen in all but one of the past 11 weeks, may claw back today’s decline before the market shuts as investors speculate policy makers will take steps to curb the currency’s slide, according to FirstRand Ltd.

“We don’t expect much rupee strength considering the global scenario,” said Paresh Nayar, head of currency and money markets at the Indian unit of FirstRand in Mumbai. “The rupee is likely to stay in a close range.”

The rupee declined 0.2 percent to 59.83 per dollar as of 9:46 a.m. in Mumbai, contributing to a 0.3 percent decline for the week, according to prices from local banks compiled by Bloomberg. It touched a record low of 61.2125 on July 8, before rebounding as the Reserve Bank of India announced measures to curb speculation and boost returns on local-currency assets.

Global funds have cut holdings of Indian debt by $8.6 billion since May 22, when Bernanke first flagged the tapering of stimulus. The shortfall in India’s current account, the broadest measure of trade, widened to an unprecedented 4.8 percent of gross domestic product in the year ended March 31, official data show.

RBI Actions

The Reserve Bank of India increased the marginal standing facility rate and the bank rate to 10.25 percent from 8.25 percent, according to a July 15 statement. The monetary authority has also started capping the amount it lends to commercial banks through the daily repurchase window to around 750 billion rupees ($12.5 billion).

The RBI last week barred lenders from proprietary trading in currency futures and exchange-traded options, and the Securities and Exchange Board of India raised margin requirements and said it will limit open positions in such contracts.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 12 basis points, or 0.12 percentage point, today to 12.45 percent.

Three-month onshore rupee forwards weakened 0.4 percent to 61.03 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts dropped 0.4 percent to 61.07. 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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