Rupee Has Biggest Weekly Drop Since August 2013 on Debt Outflows

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India’s rupee completed its biggest weekly drop since August 2013 as foreign funds pulled money from local bonds after the trade deficit widened and the government said overseas investors would have to pay a retrospective tax.

Global funds sold $320 million more rupee notes than they bought in the first four days of the week, data compiled by Bloomberg show. Foreign investors will have a pay a 20 percent capital gains tax retrospectively, although the levy won’t be imposed on them from this financial year beginning April 1, Finance Minister Arun Jaitley said in an April 14 interview on a local television channel. The comments reinforced investor concern about regulatory uncertainty in India.

The rupee fell 1.9 percent this week and 0.4 percent on Friday to close at 63.56 a dollar in Mumbai, prices from local banks compiled by Bloomberg show. That’s the biggest drop since August 2013 and the worst performance in Asia. Brent crude has jumped 18.5 percent this month, threatening to inflate the import bill for the nation that relies on overseas purchases to meet 80 percent of its oil needs.

“The retrospective tax issue, rising global oil prices and the widening trade deficit contributed to depreciation of the currency,” said Vicky Sajnani, the Mumbai-based assistant vice president for commodities and currencies at JM Financial Services Ltd. If oil prices rise further, the rupee could come under pressure, he said.

The finance ministry has issued tax notices issued to overseas funds in 68 cases for dues totaling 6.03b rupees, junior finance minister Jayant Sinha said in a parliament reply Friday.

India’s exports slumped 21 percent in March from a year earlier in the biggest drop since 2009, according to data released April 17. That resulted in the trade deficit widening to a four-month high of $11.8 billion.

The rupee has “appreciated in real terms and needs to weaken,” an adviser to India’s central bank said in an interview this week. The RBI will probably favor a further retreat in the rupee to combat the slump in exports, Ashima Goyal, a member of the central bank’s technical advisory panel, which makes policy recommendations to Governor Raghuram Rajan, said in a phone interview on Tuesday. The rupee “needs to weaken to 64 or maybe 65” a dollar this year, she said.

The yield on the 8.4 percent notes due July 2024 rose three basis points, or 0.03 percentage point today, to 7.79 percent, according to prices from the central bank’s trading system. India’s 10-year sovereign bonds were little changed this week.

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