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Rupee Sinks to Record Low as RBI Considers Action: Mumbai Mover

Rupee Gains as Subbarao Vows Necessary Steps to Curb Swings
Indian ten-rupee banknotes are arranged for a photograph in New Delhi, India. Photographer: Prashanth Vishwanathan/Bloomberg

India’s rupee fell to a record low as concern debt-stricken Greece will abandon the euro bolstered demand for dollars and curbed bids for emerging-market assets.

The currency dropped the most in more than five months after Greek political leaders’ attempts to form a coalition following a May 6 election broke down yesterday. The Reserve Bank of India is closely observing the rupee’s movement and will act if needed, central bank Deputy Governor H.R. Khan told reporters at Pokhara in Nepal today, without elaborating. Separately, Deputy Governor K.C. Chakrabarty said in Mumbai that the monetary authority isn’t looking to protect any rupee level.

“The price action today is largely due to broad-based dollar strength,” said Nick Verdi, a currency strategist in Singapore at Barclays Capital. “In this environment, where the dollar is rallying, I think the Indian authorities are limited in reversing some downmoves in the rupee.”

The rupee declined 1.3 percent to 54.4950 per dollar in Mumbai, according to data compiled by Bloomberg. That is the biggest drop since Dec. 12. The currency touched an all-time low of 54.5225 earlier and is down 6.6 percent this quarter, Asia’s worst performance.

The rupee’s one-month implied volatility, a measure of exchange-rate swings used to price options, rose 100 basis points, or 1 percentage point, to this year’s high of 13 percent.

‘Weak’ Fundamentals

The currency briefly pared losses today after Bloomberg UTV reported, citing sources it didn’t identify, that the central bank may sell dollars directly to oil companies through so-called special market operations, to ease demand for the greenback in the foreign-exchange market. Alpana Killawala, spokeswoman for the Reserve Bank, did not respond to an e-mail and two calls to her mobile phone.

India’s “weak” economic fundamentals are pressuring the currency more than global factors, according to ING Vysya Bank Ltd. The trade deficit swelled to a record $184.9 billion in the year ended March 31 and industrial output shrank 3.5 percent in March from a year earlier, government figures showed this month. Standard & Poor’s cut the outlook on the nation’s BBB- sovereign debt rating to negative on April 25.

“What needs to be done is to restore investor confidence that has completely eroded over the past few months,” said Upasna Bhardwaj, Mumbai-based economist at ING Vysya. “We require sound fundamentals to attract capital inflows that are needed to fund the current-account shortfall.”

Six-month onshore currency forwards were trading at 56.20 a dollar, compared with 55.46 yesterday, and offshore non-deliverable contracts were at 56.41 from 55.58. 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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