India's Rupee Falls to 10-Week Low on U.S. Rate Increase Bets

  • Foreign holdings of local bonds fell most since May last week
  • Month-end dollar demand also weighing on rupee: Edelweiss

India’s rupee fell to the lowest in more than two months on speculation demand for local assets is weakening as the Federal Reserve moves closer to raising U.S. interest rates.

Foreign holdings of rupee-denominated debt dropped by 34 billion rupees ($512 million) last week, the most since May, data compiled by Bloomberg show. A gauge of the dollar’s strength rose for a second day after San Francisco Fed President John Williams said Saturday there’s a strong case for a December rate rise assuming economic data continue to be encouraging. Futures contracts show a 70 percent chance of a December increase.

“Investors are nervous given the renewed talk of U.S. tightening this year,” said Ankur Jhaveri, co-head of currencies and rates at Edelweiss Financial Services Ltd. in Mumbai. Month-end demand for dollars from importers could also be weighing on the rupee, he said.

The rupee slipped 0.4 percent to 66.4775 a dollar in Mumbai, according to prices from local banks compiled by Bloomberg. That’s the lowest closing level since Sept. 11. The currency has declined 1.8 percent this month. Overseas investors sold a net $358.4 million of Indian shares last week through Nov. 19.

The yield on the sovereign notes due May 2025 rose two basis points to 7.72 percent, according to prices from the Reserve Bank of India’s trading system. The yield climbed five basis points last week, including three basis points on Friday, as a proposed wage increase for federal employees raised concern the government may miss its fiscal-deficit target.

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