The rupee retreated to its lowest level since November 2013 as overseas funds pared holdings of Indian assets amid a global selloff.
Foreign investors withdrew a net $101 million from local stocks and bonds on May 5, the latest exchange data show. Sovereign notes also fell as the 21 percent rally in Brent crude in April reignited concern about inflation in India, which imports about 80 percent of its oil. About $2 trillion has been wiped from the value of equities and debt worldwide since the start of last week amid signs of price stabilization in Europe and speculation over an increase in U.S. interest rates.
The rupee weakened for a fifth day, losing 0.6 percent to 63.9075 a dollar at 11:43 a.m. in Mumbai, prices from local banks compiled by Bloomberg show. It touched 63.9275 earlier, the lowest since September 2013. Global funds were net buyers of local debt and equities in the first four months of 2015.
“The rise in yields across U.S. and Europe and the surge in oil prices are weighing on the markets,” said Jayesh Mehta, managing director and head of treasury at Bank of America Merrill Lynch in Mumbai. “If the currency breaches the 64 level, expectations of a rate cut by the central bank in its June policy will reduce.”
The Reserve Bank of India has lowered borrowing costs twice in 2015 as a 49 percent plunge in Brent crude prices in the 12 months through March helped slow consumer inflation and improve the current-account deficit for Asia’s third-largest economy. The RBI next reviews rates on June 2.
The yield on the 8.4 percent government notes due July 2024 climbed three basis points, or 0.03 percentage point, to 7.92 percent in Mumbai, heading for its highest close since Dec. 29, according to prices from the RBI’s trading system.