India’s Rupee Weakens After Biggest Four-Day Surge Since 1973

India’s rupee fell, snapping the biggest four-day surge in 40 years, on concern slowing growth will deter inflows needed to reduce the current-account deficit.

The currency strengthened 6.1 percent in the four days through yesterday after Raghuram Rajan, who took charge as governor of the Reserve Bank of India on Sept. 4, announced steps to boost the supply of dollars. The relative strength index had risen to 83 before the rally, surpassing the 70 level that indicates a rupee rebound. Gross domestic product grew 4.4 percent last quarter, the slowest pace since the three months ended March 2009, official data show.

“I am still concerned about the growth outlook and the RBI has to walk hand-in-hand with the government to announce necessary reforms,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. (WBC) in Singapore. “Technicals had been poised for a rupee rebound and all that was needed was a small sprinkle of relative good news that came in the form of the governor’s speech.”

The rupee declined 0.4 percent to 64.08 per dollar as of 10:17 a.m. in Mumbai, according to prices from local banks compiled by Bloomberg. The four-day gain was the biggest in data compiled by Bloomberg going back to 1973 after the rupee touched a record low of 68.845 on Aug. 28

Global funds have cut holdings of rupee-denominated debt by $10.3 billion since May 22, when Federal Reserve Chairman Ben S. Bernanke flagged a potential paring of stimulus. The Fed meets to review its bond-buying policy on Sept. 17-18.

Oil Prices

One-month implied volatility in the rupee, a measure of expected moves in the exchange rate used to price options, fell 18 basis points, or 0.18 percentage point, to 17.85 percent.

The rupee’s losses will be limited on optimism lower oil prices will help the government achieve its aim of narrowing the current-account gap to $70 billion in the year through March 2014 from an unprecedented $87.8 billion in the previous period, Cavenagh said.

Brent crude fell the most since June 20 yesterday as U.S. President Barack Obama called for a pause in authorizing military strikes on Syria. Any positive news flow may push the rupee as high as 62.7 in the coming days before it resumes its fall toward 70 per dollar, Cavenagh forecast, adding he would not buy the Indian currency.

Rajan last week announced a plan to provide concessional swaps for banks’ foreign-currency deposits to boost the supply of dollars. This will add $10 billion to the nation’s reserves, Bank of America Merrill Lynch estimates.

Three-month onshore rupee forwards fell 0.5 percent to 65.61 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts declined 0.2 percent to 66.09. 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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