Indian Rupee Approaches Record Low on Inflow Concern; Bonds Drop
India’s rupee fell to within 0.3 percent of a record low and sovereign bonds declined on concern measures to attract capital inflows won’t be enough to stem the currency’s slide as growth slows.
The government plans to curb some imports to rein in a record current-account deficit, Finance Minister Palaniappan Chidambaram said in parliament yesterday, adding that financial companies would be able to issue “quasi-sovereign” bonds to attract investment. The Reserve Bank of India will sell 110 billion rupees ($1.8 billion) of 34-day cash management bills today as it seeks to tighten cash supply to buoy the rupee.
The rupee weakened 0.5 percent to 61.5875 per dollar as of 9:51 a.m. in Mumbai, according to prices from local banks compiled by Bloomberg. The currency, which plunged to a record 61.805 on Aug. 6, touched 61.625 earlier. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 14 basis points to 12.48 percent.
“There were significant expectations in the market on measures that could be used to raise dollar inflows into the economy” including bonds sold to Indians living abroad, said Indranil Pan, chief economist at Kotak Mahindra Bank Ltd. in Mumbai. The prospects of such debt being offered is decreasing, weakening the currency, he said.
Wholesale prices probably rose 5 percent last month from a year earlier, compared with 4.86 percent in June, according to the median of 34 estimates in a Bloomberg survey before a report due tomorrow. Consumer prices rose 9.64 percent in July from a year earlier, versus 9.87 percent, official data showed yesterday. Industrial production contracted 2.2 percent in June, dropping for a second month, and the goods trade deficit was $12.3 billion in July, almost the same as in June, as exports rebounded and imports dipped.
“These numbers were too mixed to provide much relief to policy makers,” analysts at HSBC Holdings Plc, including Singapore-based Leif Eskesen, wrote in a research report yesterday.
The yield on the 7.16 percent government bonds due May 2023 rose six basis points, or 0.06 percentage point, to 8.36 percent, according to prices from the central bank’s trading system. Global funds have cut holdings of Indian notes by $9.9 billion since May 22, when Federal Reserve Chairman Ben S. Bernanke first signaled debt purchases may be tapered this year.
Three-month onshore rupee forwards fell 0.7 percent to 63.14 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts dropped 0.9 percent to 63.08. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
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