India’s rupee fell the most in a week on speculation importers stepped up dollar purchases to pay month-end bills.
The currency snapped a two-day advance as economists predict the central bank will hold back pro-growth policy measures to cool inflation. The Reserve Bank of India will hold its benchmark repurchase rate at 8 percent at a review tomorrow, according to 31 of 34 analysts in a Bloomberg News survey, even after China, South Korea and the Philippines lowered borrowing costs this month. The rupee rose earlier on optimism Europe’s leaders will boost efforts to contain the region’s debt turmoil.
“We are seeing dollar purchases, possibly for month-end payments,” said Naveen Raghuvanshi, a trader at Development Credit Bank Ltd. in Mumbai. “Also, traders will be wary of adding heavy positions ahead of the RBI review tomorrow.”
The rupee declined 0.4 percent to 55.5850 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 55.1975 earlier, the strongest level since July 20. One-month implied volatility, a measure of exchange-rate swings used to price options, fell 30 basis points, or 0.30 percentage point, to 11.20 percent.
Inflation risks in Asia’s third-largest economy remain significant even as threats to economic growth have risen, the central bank said in a statement today. RBI Governor Duvvuri Subbarao said on July 16 that the pace of price gains, which measured 7.25 percent in June, is “way above” the central bank’s threshold of around 5 percent.
The rupee is also under pressure to weaken on concern inadequate seasonal rainfall will spur inflation by boosting food prices, Mitul Kotecha, head of global currency strategy at Credit Agricole CIB in Hong Kong, wrote in a note to clients today.
India’s monsoon, which accounts for more than 70 percent of annual rainfall, is likely to be 21 percent below normal in the two months ending July 31, Agriculture Secretary Ashish Bahuguna told reporters in New Delhi on July 27.
Three-month onshore rupee forwards traded at 56.41 per dollar, unchanged from July 27, and offshore non-deliverable contracts were at 56.36 from 56.28. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.