India Rupee Drops on Outflow Concern as Goldman Says Sell Stocks

India’s rupee fell on concern outflows from stocks may intensify after Goldman Sachs Group Inc. recommended cutting holdings amid the slowest growth in a decade.

The Reserve Bank of India tightened the cash supply last month to buoy the rupee and said July 30 the measures will be rolled back as the currency stabilizes, leaving its key policy rate unchanged the same day. The monetary authority also lowered its growth forecast to 5.5 percent for the year through March 2014 from 5.7 percent. Goldman yesterday cut its rating on Indian shares to underweight, and said it sees “increasing risk of a potential flow reversal.”

The rupee declined 0.4 percent to 60.58 per dollar as of 10:18 a.m. in Mumbai, after dropping as much as 0.8 percent earlier, according to prices from local banks compiled by Bloomberg. The central bank probably sold dollars today to support the rupee, according to two traders with knowledge of the matter, who asked not to be named as the information isn’t public. The Indian currency fell 2.5 percent this week and touched a record low 61.2125 on July 8.

“The Goldman report was a disturbing factor,” said Naveen Raghuvanshi, a trader at Development Credit Bank Ltd. (DEVB) in Mumbai. “Possible RBI intervention is a risk for the exchange rate today.”

Overseas investors pulled $3 billion from Indian stocks and bonds last month on concern the Federal Reserve will pare stimulus that drove demand for emerging-market assets. While data in the U.S. showed gross domestic product grew more than economists estimated in the second quarter, the Fed said yesterday persistently low inflation poses a risk. The European Central Bank and the Bank of England review interest rates today.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 17 basis points, or 0.17 percentage point, to 13.63 percent.

Three-month onshore rupee forwards declined 0.1 percent to 61.98 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts rose 0.5 percent to 62.07. 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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