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India Rupee Drops to 10-Week Low as Europe Concern Boosts Dollar

India’s rupee fell to a 10-week low after European leaders failed to agree on a debt-reduction package for Greece, boosting demand for the relative safety of the dollar.

Euro-area finance ministers will meet again on Nov. 26, Luxembourg Prime Minister Jean-Claude Juncker said after chairing the meeting, following more than 11 hours of talks yesterday. Asian currencies will trade in a narrow range ahead of a U.S. holiday tomorrow, according to Credit Agricole SA, which said “it remains to be seen” if foreign funds will buy Indian debt after purchasing quotas yesterday.

There is “much focus remaining on the European debt situation,” analysts at Credit Agricole, including Paris-based Sebastien Barbe, wrote in a report today. “The rupee remains under pressure.”

The rupee declined 0.1 percent to 55.1250 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 55.3750 earlier, the weakest level since Sept. 13, when the government began announcing measures to improve public finances and attract investment. One-month implied volatility, a measure of exchange-rate swings used to price options, was unchanged at 9.75 percent.

The Dollar Index, which tracks the greenback against six major trading partners, rose 0.1 percent. Global funds purchased the right to buy 106 billion rupees ($1.9 billion) of local-currency Indian debt yesterday. The “reluctance” of the Reserve Bank of India to lower its key policy rate “does not provide a favorable environment for bond investment,” according to the Credit Agricole note. The RBI has kept the repurchase rate at 8 percent since April, citing inflation pressure.

Unhedged Forex Exposure

Indian banks are still not “rigorously” evaluating risks from companies’ unhedged foreign-currency exposure, the central bank said in a statement today, adding that such risks can threaten the nation’s financial system.

Three-month onshore rupee forwards were at 55.99 per dollar, compared with 55.95 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.98 versus 55.93. 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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