The rupee was 0.5 percent off an all-time low before Federal Reserve Chairman Ben S. Bernanke speaks to reporters at a briefing that may clarify the outlook for U.S. monetary stimulus.
Global funds have cut holdings of rupee debt by $4.7 billion since Fed Chairman Ben S. Bernanke said May 22 that stimulus measures could be scaled back if the labor market shows sustainable improvement. The Fed has been buying $85 billion of bonds a month, a measure known as quantitative easing, to spur the world’s largest economy. The cash has contributed to inflows into higher-yielding emerging markets.
“The Fed will have to signal some pullback in the quantitative easing, only the manner and timing is undecided,” said J. Moses Harding, executive vice president at IndusInd Bank in Mumbai. “This will not be good news for India.”
The rupee rose 0.1 percent to 58.7150 per dollar in Mumbai, according to data compiled by Bloomberg. It touched a record low of 58.9850 on June 11. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose seven basis points, or 0.07 percentage point, to 11.36 percent, data compiled by Bloomberg show.
The RBI won’t prevent the rupee from falling past 59 as the drop would be in line with “weak” global sentiment, Harding said. The monetary authority will intervene to protect the 60-level, he added.
The currency’s losses were limited today on speculation the government will permit more overseas investment, Harding said. A finance ministry panel has recommended increasing foreign investment limits in areas including defense, telecommunications and retail, said three government officials with knowledge of the matter.
Overseas investors should be able to own all of a telecom company in India instead of the current limit of 74 percent, according to the panel’s proposals, the unnamed government officials said, asking not to be identified as the information isn’t public. The ceiling in defense should be raised to 49 percent from 26 percent and in supermarkets to 74 percent from 51 percent, they said.
Three-month onshore rupee forwards were little changed at 59.66 per dollar, according to data compiled by Bloomberg. Offshore non-deliverable contracts fell 0.1 percent to 59.83. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.