Rupee Falls From 2-Week High as Importers Step Up Dollar Buying

India’s rupee fell, retreating from the strongest level in almost two weeks, on speculation importers boosted purchases of the dollar.

The rupee declined 0.2 percent to 54.6250 per dollar in Mumbai, according to data compiled by Bloomberg. It rose as much as 0.4 percent to 54.3050 earlier, the strongest level since Jan. 2.

“We are seeing importers buying dollars,” said Naveen Raghuvanshi, a trader at Development Credit Bank Ltd. in Mumbai. “The rupee should stabilize at current levels, supported by inflows.”

The BSE India Sensitive Index of shares breached 20,000 for the first time since January 2011 today after the government yesterday delayed a clampdown on tax avoidance to 2016 due to the plans spooking foreign investors, who have pumped a net $1.6 billion into local stocks so far this year, exchange data show. The rupee gained earlier on speculation the central bank will reduce interest rates to boost economic growth after inflation slowed to a three-year low in December.

One-month implied volatility in the rupee, a gauge of expected moves in exchange rates used to price options, fell 15 basis points, or 0.15 percentage point, to 9.80 percent.

The central bank will lower its benchmark repurchase rate by at least 25 basis points to 7.75 percent by the end of March, according to 19 of 22 analysts in a Bloomberg survey. The next policy review is due Jan. 29.

Swap Facility

“The rupee should begin to appreciate on a broad and more sustained basis as the Reserve Bank of India engineers monetary policy easing,” analysts at Morgan Stanley, including New York-based Rashique Rahman, wrote in a report received today.

The RBI announced a swap facility yesterday to channel credit to the export sector, which will support the rupee, according to Surbhi Ogra, an analyst at ICICI Bank Ltd. in Mumbai.

Three-month onshore rupee forwards traded at 55.60 per dollar, compared with 55.43 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.44 versus 55.26. 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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