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Rupee Drops to Two-Month Low as Factory Output, Exports Decline

India’s rupee fell to a two-month low, reversing an earlier gain, as reports showed industrial production unexpectedly contracted and the trade deficit widened to a record.

Factory output in Asia’s third-largest economy declined 0.4 percent in September from a year earlier, according to a statement from the Central Statistical Office, compared with a 2.8 percent increase predicted by economists in a Bloomberg survey. The nation’s exports fell 1.6 percent last month while imports rose 7.4 percent, leaving a trade deficit of $20.96 billion, Commerce Secretary S.R. Rao said in a separate statement in New Delhi today.

“The industrial output numbers were quite disappointing,” said Upasna Bhardwaj, an economist at ING Vysya Bank Ltd. in Mumbai. “The drop in exports is a cause for concern and will continue to pressure the rupee.”

The rupee declined 0.2 percent to 54.8750 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 55.1250 earlier, the weakest level since Sept. 13, when the government began a slew of policy changes to improve public finances and attract investment.

One-month implied volatility, a measure of exchange-rate swings used to price options, rose 40 basis points, or 0.40 percentage point, to 10.50 percent.

Importers stepped up dollar purchases to meet payments before local markets shut for a two-day holiday starting tomorrow, according to Pramit Brahmbhatt, chief executive officer at Alpari Financial Services India Ltd. in Mumbai.

Three-month onshore rupee forwards were at 55.87 per dollar, compared with 55.64 on Nov. 9, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.92 versus 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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