India’s Rupee Snaps Two-Day Gain as U.S. Data Boost Taper Bets

India’s rupee snapped a two-day gain on speculation an improving U.S. economy will prompt the Federal Reserve to further cut stimulus that has fueled inflows to emerging markets.

U.S. retail sales rose 0.2 percent in December, beating the 0.1 percent gain predicted by economists in a Bloomberg survey, a report showed yesterday. Gains in India’s wholesale-price index probably slowed to 6.99 percent last month from a year earlier after a 7.52 percent increase in November, a survey showed before data due today.

The rupee declined 0.1 percent from Jan. 13 to 61.5525 per dollar as of 10:34 a.m. in Mumbai, according to prices from local banks compiled by Bloomberg. The local currency market was shut yesterday for a holiday.

“The rupee weakened after the strong U.S. data,” said Naveen Raghuvanshi, a currency trader at Development Credit Bank Ltd. in Mumbai. “The market has factored in lower inflation.”

Consumer prices rose 9.87 percent in December, official data showed Jan. 13, slower than the 10.06 percent estimated in a separate Bloomberg survey. The Reserve Bank of India is scheduled to review policy on Jan. 28, a day before the Federal Open Market Committee is due to conclude its two-day meeting.

This week, India’s central bank eased some trading curbs imposed as rupee depreciated in the past two years. Investors can conditionally cancel and rebook forward contracts with remaining maturities of one year or less, the RBI said in a statement after the market shut on Jan. 13.

RBI ‘Confident’

This is a sign that policy makers are confident about the currency’s relative stability, Radhika Rao, an economist at DBS Bank Ltd. in Singapore, wrote in a research report today.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 21 basis points, or 0.21 percentage point, from Jan. 13 to 8.45 percent. The rate has dropped from 22.24 percent on Aug. 28 when the rupee plunged to a record 68.845 per dollar.

Three-month offshore non-deliverable forwards slipped 0.3 percent from yesterday to 62.78 per dollar, data compiled by Bloomberg show. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

To contact the reporters on this story: Divya Patil in Mumbai at dpatil7@bloomberg.net; 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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