Rupee Completes Worst Month Since January as Fed Spurs Outflows

Jaitley: No Slowdown for India
  • Foreign holdings of Indian debt drop by 46.8 billion rupees
  • Rupee expected to weaken to 69 by December-end: India Forex

India’s rupee capped its biggest monthly decline since January as foreign funds exited local bonds amid an emerging-market selloff sparked by growing speculation that a U.S. interest-rate increase is imminent.

Overseas holdings of government and corporate debt fell by 46.8 billion rupees ($696 million) as of May 30, after climbing for two straight months, National Securities Depository Ltd. show. The rupee weakened with currencies of developing nations as Federal Reserve Chair Janet Yellen said Friday a strengthening U.S. economy would probably warrant higher borrowing costs “in the coming months.” Futures show odds for an increase in June are at 30 percent, up from 4 percent on May 16. Those for July are at 54 percent.

“Heightened expectations of Fed rate hikes unnerved investors, and that’s getting reflected on the rupee,” said Abhishek Goenka, chief executive officer at India Forex Advisors Pvt. in Mumbai. “The rupee is likely to weaken further due to uncertain debt inflows.”

The Indian currency retreated 1.4 percent in May to 67.26 a dollar in Mumbai, according to prices from local banks compiled by Bloomberg, including a 0.1 percent drop on Tuesday. The rupee has dropped 1.6 percent this year in Asia’s worst performance. Goenka expects it to weaken to 69 by year-end.

Recent losses have also been fueled by a May 13 report that showed Indian exports contracted 6.7 percent in April from a year earlier, declining for the 17th month, while imports dropped 23.1 percent.

GDP Data

Sovereign bonds completed their first monthly drop since January. The yield on notes due January 2026 climbed four basis points from the end of April to 7.47 percent, according to prices from the central bank’s trading system. It rose one basis point on Tuesday. The central bank purchased 150 billion rupees of government securities via open-market operations as planned, its statement showed.

India’s economy probably grew 7.5 percent in the January-March quarter from the same period a year ago, a Bloomberg survey of economists showed before data due later Tuesday. That’d be faster than the 7.3 percent pace seen in the previous quarter.

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