Indian Rupee, Bonds Fall on Concern U.S. Shutdown to Cut Inflows

India’s rupee snapped a three-day gain on speculation foreign investors will reduce purchases of the nation’s stocks as U.S. lawmakers remain deadlocked over extending the debt ceiling.

With the U.S. set to exhaust measures to avoid breaching the borrowing limit on Oct. 17, House of Representatives Speaker John Boehner said lawmakers won’t raise the threshold without packaging it with other provisions, a nonstarter for President Barack Obama. India’s S&P BSE Sensex (SENSEX) index of shares fell as much as 1.4 percent, while bonds also declined. The rupee’s losses were limited as exporters were seen converting overseas earnings, according to Andhra Bank. (ANDB)

“The equity market is weak amid global concerns and that’s what’s hitting the rupee,” said Vikas Babu, a trader at state-run Andhra Bank in Mumbai. “Inflows are essential for India and so sentiment is a bit weak.”

The rupee dropped 0.6 percent to 61.7950 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. It rose 1.7 percent last week, the best performance among the 11 most-traded Asian currencies tracked by Bloomberg. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell two basis points, or 0.02 percentage point, to 14.98 percent.

The yield on 7.16 percent sovereign bonds due May 2023 climbed seven basis points to 8.68 percent, according to prices from the central bank’s trading system. The Reserve Bank of India bought 99.74 billion rupees of bonds at an open-market auction today, compared with the 100 billion it offered to purchase, the RBI said in an e-mailed statement.

Offshore Forwards

Obama, in an interview with the Associated Press, said he expects Congress to reach an agreement to raise the nation’s $16.7 trillion debt limit in time to avert a default. Raghuram Rajan, India’s central bank governor, said in an Oct. 4 speech in the eastern city of Raipur that the country’s current-account deficit may be under control and monsoons will help reduce inflation.

One-month onshore rupee forwards fell 0.6 percent to 62.43 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts declined 0.6 percent to 62.44. 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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