India’s Rupee Drops to One-Week Low on Growth, Inflow Concerns

India’s rupee fell to a one-week low on concern reports casting doubt on the strength of the global recovery will damp capital inflows, making the currency more vulnerable to a record current-account deficit.

A preliminary Chinese purchasing managers’ index of manufacturing published today by HSBC Holdings Plc and Markit Economics dropped to 50.5 in April from 51.6 in March, holding above the dividing line of 50 that signals expansion. Purchases of existing homes in the U.S. dwindled to a 4.92 million annual rate last month, less than a revised 4.95 million in February, a report showed yesterday.

“External financing requirements look set to remain uncomfortably high for the foreseeable future, leaving the economy and the rupee exposed to any pull-back in global risk appetite,” Richard Iley and Mole Hau, Hong Kong-based economists at BNP Paribas SA, wrote in a research note today. “India’s challenges remain immense and, hence, prospects uncertain.”

The rupee declined 0.4 percent to 54.3850 per dollar, according to data compiled by Bloomberg. It touched 54.43 earlier, the weakest level since April 16. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 15 basis points, or 0.15 percentage point, to 8.45 percent. Markets will be closed tomorrow for a public holiday.

India’s current account deficit could be about $100 billion in the fiscal year that began April 1, or 4.7 percent of GDP, Chakravarthy Rangarajan, the chairman of Prime Minister Manmohan Singh’s economic advisory council said today. He estimated last fiscal year’s deficit at 5.1 percent of GDP.

Oil Imports

The 9.5 percent drop in oil prices and the 11 percent decline in gold this month will ease India’s “yawning” external financing needs, although not a “game changer,” according to the BNP Paribas note.

India’s oil trade deficit widened to an all-time high of 6.3 percent of gross domestic product in 2012, while gold imports rose to a record 3 percent of GDP, according to BNP Paribas. Excluding oil and gold, the current-account balance has been consistently in surplus over the past decade or so, running at around 4.2 percent of GDP in calendar 2012, the lender said.

Three-month onshore rupee forwards traded at 55.34 per dollar, compared with 55.15 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.17 versus 54.93. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.