Rupee Declines to 3-Month Low on Inflation Concern: Mumbai Mover

India’s rupee dropped past 52 per dollar for the first time in more than three months on concern faster inflation will damp demand for local assets.

The currency also weakened after Commerce Secretary Rahul Khullar said the nation’s trade deficit widened 56 percent in the year ended March 31 to a record $184.9 billion. India’s consumer-price index climbed 9.47 percent in March, official data showed yesterday, after rising 8.83 percent in February. Reserve Bank of India Governor Duvvuri Subbarao said policy makers are “concerned” about inflation expectations.

“The statement from the governor has shown his concern that there is every possibility the inflation rate will rise,” said Ravi Ranjit, chief manager at Federal Bank Ltd. in Mumbai. “Inflows are at risk and there is pressure on the rupee.”

The Indian currency declined 0.7 percent to 52.1450 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 52.1550 earlier, the weakest level since Jan. 10. The central bank may sell dollars to curb currency losses that would inflate import costs, according to Ranjit.

One-month implied volatility for the rupee, a measure of exchange-rate swings used to price options, rose 25 basis points, or 0.25 percentage point, to 9.85 percent.

Overseas funds reduced holdings of Indian shares by $31 million in the first two days of this week, exchange data show.

“The record trade deficit for fiscal year 2012 is only likely to add on to the negative sentiment surrounding the rupee,” Priyanka Kishore, a currency strategist at Standard Chartered Plc in Mumbai, wrote in a report today.

The benchmark wholesale-price index rose 6.89 percent in March from a year earlier, exceeding the median estimate of 6.65 percent in a Bloomberg News survey. That’s the fastest pace among the so-called BRIC group of emerging-market economies that also includes Brazil, Russia and China.

Six-month onshore forwards traded at 53.77 per dollar, compared with 53.44 yesterday, and offshore non-deliverable contracts were at 53.93 from 53.50. 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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