Offshore Rupee Forwards Drop Most This Week on Outflow Concern

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Indian rupee forwards traded offshore fell the most this week on speculation global funds will sell assets in emerging markets as the U.S. looks to raise interest rates.

A statement from the Federal Reserve’s two-day meeting that ended Wednesday showed policy makers turned more bullish on the job market. Overseas investors sold a net $205 million of Indian stocks on July 28, the biggest single-day outflow since May 6, data compiled by Bloomberg show. Global funds pulled a net 12.6 billion rupees ($197 million) from rupee-denominated bonds so far this week.

One-month offshore non-deliverable rupee forwards weakened 0.3 percent to 64.35 a dollar in Mumbai on Thursday, snapping a two-day advance, according to data compiled by Bloomberg. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars. The spot rupee and sovereign bonds also fell.

“The Fed’s commentary has raised concern of capital outflows,” said Sajal Gupta, head of foreign exchange and rates at Edelweiss Securities Ltd. in Mumbai. “Investors will now look at the U.S. gross domestic product data due Thursday to get more cues on the timing of the Fed’s rate increase.”

The Federal Open Market Committee described U.S. job gains as “solid,” while stopping short of providing more specific timing for liftoff. Fed Chair Janet Yellen said earlier this month she expects the central bank to raise its benchmark rate this year, and that waiting too long to raise rates holds risks for the economy, as does tightening too quickly. The dollar is set for its biggest monthly gain since March.

In the spot market, the rupee fell 0.2 percent on Thursday to 64.0425 a dollar. The yield on 10-year government bonds rose 1 basis point to 7.82 percent, according to prices from the Reserve Bank of India’s trading system.

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