The rupee had its biggest weekly loss in a month after data showed India’s current-account deficit widened to a record while capital inflows slowed. Ten-year bonds gained.
The government will act to tackle the shortfall and to spur foreign investment, Prime Minister Manmohan Singh said April 3. The gap in the broadest measure of trade was $32.6 billion in the quarter through December, a central bank report showed March 28. Dravida Munnetra Kazhagam, one of nine partners in Singh’s ruling alliance, withdrew support to the administration last month over its approach to alleged war crimes in Sri Lanka.
“The rupee will depreciate because the current-account deficit story is pretty negative,” said Vivek Rajpal, a Mumbai-based strategist at Nomura Holdings Inc. “Political uncertainty and growth worries mean portfolio inflows are also slowing.”
The rupee lost 1 percent this week, the most since the five days ended March 1, to 54.8125 per dollar in Mumbai, according to data compiled by Bloomberg. It rose 0.1 percent today, after touching 54.8975 yesterday, the lowest level since March 7. Nomura predicts the currency will drop to 59 by the end of 2013.
One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, fell 10 basis points, or 0.10 percentage point, from a week ago to 7.8950 percent. The measure rose 6 basis points today.
Global funds boosted holdings of Indian stocks by $1.9 billion in March, exchange data show, after adding more than $4 billion in each of the previous three months.
The economy probably expanded 5 percent in the year ended March 31, which would be the least since 2003, the Central Statistical Office predicted in February.
Three-month onshore rupee forwards traded at 55.93 per dollar, compared with 55.53 at the end of last week, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.86 versus 55.53. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
India’s benchmark bonds due in 2022 rose today, extending the week’s gains.
The finance ministry started its record 6.29 trillion rupees ($115 billion) borrowing program for the fiscal year that began April 1 today. It sold 150 billion rupees of notes due 2020, 2026, 2032 and 2042, according to a central bank statement.
The yield on the 8.15 percent notes due June 2022 fell three basis points today, or 0.03 percentage point, to 7.93 percent in Mumbai, according to the central bank’s trading system. The rate touched a three-month high of 7.99 percent on April 2.