India’s rupee fell to the lowest level in 2013, erasing earlier gains, on speculation importers stepped up purchases of the dollar to benefit from the exchange rate before U.S. Federal Reserve officials speak this week.
Chicago Federal Reserve President Charles Evans said yesterday the world’s largest economy is “improving quite a lot,” spurring concern the monetary authority will curb stimulus measures that have contributed to inflows into emerging markets. Fed Chairman Ben S. Bernanke testifies on the economy in Congress tomorrow. The rupee had strengthened earlier after foreign investors pumped money into the nation’s assets as inflation eased to a 41-month low.
“Markets await further cues from Bernanke’s testimony with regards to the Fed’s exit strategy,” L. Subramanian, an analyst at ICICI Bank Ltd. in Mumbai, wrote in a research report today. “Dollar demand from oil importers” pressured the rupee, he wrote.
The rupee declined 0.5 percent to 55.4150 per dollar in Mumbai, the weakest level since Nov. 27, according to data compiled by Bloomberg. It earlier rose as much as 0.3 percent. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 20 basis points, or 0.20 percentage point, to 8.28 percent.
Bernanke testifies tomorrow, less than a month before the policy-setting Federal Open Market Committee meets. The FOMC said May 1 that it will keep buying $85 billion in bonds per month to bolster growth, and that it would increase or decrease the pace of purchases in response to the labor market and inflation.
Global funds bought a net $883 million of Indian shares last week and foreign holdings of local debt rose to a record $38 billion on May 17, exchange data show. An auction of 55.33 billion rupees ($1 billion) of sovereign debt-purchase permits was oversubscribed yesterday, according to two people with knowledge of the matter who asked not to be identified as they aren’t authorized to speak to the media.
Three-month onshore rupee forwards traded at 56.22 per dollar, compared with 56.04 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 56.13 versus 55.88. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.