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Indian Rupee Set for First Monthly Drop of 2012 on Deficit Woes

India’s rupee headed for its first monthly decline this year amid concern persisting inflation and the trade deficit will deter foreign investors.

The currency pared its 2012 advance as the central bank kept interest rates unchanged on March 15, citing risks that gains in wholesale prices will quicken. Finance Minister Pranab Mukherjee said on March 16 the shortfall in India’s current account will be 3.6 percent of gross domestic product this fiscal year ending March 31, compared with 2.6 percent in the previous 12 months. Capital flows into Indian equities declined to an average $100 million a day in March from $270 million in February, exchange data show.

“Overall, there are trade deficit and outflow concerns, which are compounding year-end demand for dollars,” said Priyanka Kishore, a strategist at Standard Chartered Plc in Mumbai. “We are pretty bearish on the rupee.”

The rupee declined 4.2 percent this month to 51.175 per dollar as of 9:58 a.m. in Mumbai, according to data compiled by Bloomberg, paring its quarterly advance to 3.7 percent. The currency gained 0.4 percent today.

Wholesale-price inflation accelerated 6.95 percent in February, according to government data, after slowing to 6.55 percent a month earlier. India’s economy probably grew 6.9 percent this fiscal year, the slowest pace since 2009, Mukherjee said this month. Markets are expecting a cut in the Reserve Bank of India’s repurchase rate at an April 17 review, Standard Chartered’s Kishore said, which could provide “some relief” to the rupee.

One-month implied volatility, a measure of exchange-rate swings used to price options, was unchanged at 9.80 percent, according to data compiled by Bloomberg.

Three-month offshore non-deliverable forward contracts for the rupee traded at 52.29 a dollar, compared with 52.40 yesterday. 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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