India’s Rupee Snaps Two-Day Gain on Growth, Inflation Concerns

India’s rupee snapped a two-day gain before a report that economists predict will show inflation stayed near a seven-month-high, reducing room for the central bank to spur slowing growth.

Wholesale prices rose 6 percent in September from a year earlier, according to the median of 33 estimates in a Bloomberg survey before data due around noon in New Delhi today. That’s little changed from August’s 6.1 percent, which was the fastest pace since February. Industrial production climbed 0.6 percent in August, slowing from July’s 2.8 percent, a government report issued after the market shut on Oct. 11 showed. The median estimate in a Bloomberg survey was for a 2 percent gain.

“Even as the growth dynamics remain on the downside it is unlikely to attain much priority from the Reserve Bank of India,” economists at Kotak Mahindra Bank Ltd., including Indranil Pan in Mumbai, wrote in a research report today.

The rupee fell 0.2 percent to 61.1850 per dollar as of 9:59 a.m. in Mumbai, according to prices from local banks compiled by Bloomberg. The currency has rebounded more than 12 percent from a record low of 68.845 touched Aug. 28.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 16 basis points, or 0.16 percentage point, to 14.9 percent. The rate has fallen from a five-year high of 22.4 percent on Sept. 4.

Rate Decision

The rupee’s relative stability will allow the central bank to further relax cash-supply curbs that had been announced to steady the currency, even as the monetary authority raises the benchmark rate to arrest inflation, the Kotak Mahindra economists wrote. The bank predicts the Reserve Bank of India will cut the marginal standing facility by 25 basis points to 8.75 percent at a review on Oct. 29, while the repurchase rate will be boosted by 25 basis points to 7.75 percent.

U.S. Senate leaders have yet to reach an agreement on how to end the fiscal impasse pertaining to raising the debt ceiling three days before the government’s borrowing authority lapses.

One-month onshore rupee forwards fell 0.2 percent to 61.73 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts declined 0.3 percent to 61.66. 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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