India Rupee Nears Two-Week Low on Record Current-Account Deficit

India’s rupee traded within 0.4 percent of a two-week low after the current-account deficit widened to a record.

The shortfall in the broadest measure of trade rose to $32.6 billion in the three months through December from the previous quarter’s $22.6 billion, the central bank said late on March 28. The market was shut on March 29 for a local holiday and there was no trade yesterday as banks closed their accounts. India may need more than $75 billion of foreign capital in the year through March 2014 to fund the deficit, which is a “greater worry” than the budget gap, Finance Minister Palaniappan Chidambaram said Feb. 28.

The rupee was little changed from March 28 at 54.27 per dollar in Mumbai, after earlier dropping as much as 0.2 percent, according to data compiled by Bloomberg. It touched 54.4650 last week, the lowest level since March 20. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell nine basis points, or 0.09 percentage point, to 8.01 percent.

“The elevated current-account deficit will likely keep the rupee under pressure in the 54 to 56 range” with the possibility of further weakening, Rohini Malkani, Mumbai-based economist at Citigroup, wrote in a report today. “There is an increasing reliance on market-dependent flows such as portfolio flows, non-resident Indian deposits and loans.”

Three-month onshore rupee forwards traded at 55.35 per dollar, compared with 55.33 on March 28, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.28 versus 55.53 on March 29. 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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