India’s rupee halted a two-day gain on concern demand for local assets will weaken as the U.S. Federal Reserve considers raising interest rates.
Most Asian currencies dropped amid speculation Fed Chair Janet Yellen will defend the reasoning behind a possible liftoff in December in her speech to The Economic Club of Washington on Wednesday. Foreign holdings of rupee-denominated debt are poised to fall for a third straight week while Indian stocks are set for a fourth week of withdrawals. Sovereign bonds declined on Wednesday.
“The rupee is definitely on a weaker trend on account of the portfolio outflows,” said Param Sarma, director and chief executive officer of Mumbai-based NSP Treasury Risk Management Services Pvt. “The Fed’s rate decision is crucial for the currency.”
The rupee weakened 0.2 percent to 66.6050 a dollar, according to prices from local banks compiled by Bloomberg. It declined 2.1 percent last month in Asia’s worst performance. Futures contracts indicate there is a 72 percent chance the Fed will act at its Dec. 15-16 meeting, a move that will reduce the allure of emerging-market assets. The odds were at 50 percent at the end of October.
Overseas holdings of bonds have fallen 2.76 billion rupees ($41.5 million) so far this week, after dropping 44.1 billion in the previous two weeks, data from the National Securities Depository Ltd. show. Stocks have seen withdrawals of $308.9 million.
The yield on government notes due May 2025 rose two basis points to 7.74 percent in Mumbai, according to prices from the central bank’s trading system show. It slid seven basis points on Tuesday, the most in two months, as Reserve Bank of India Governor Raghuram Rajan indicated that he is not done cutting interest rates.
The RBI “will use the space for further accommodation, when available,” Rajan said even as he left the benchmark repurchase rate steady at 6.75 percent.