Rupee Drops to One-Month Low on Concern Fund Inflows Will Slow

India’s rupee fell to a one-month low on speculation an improving U.S. economy will prompt the Federal Reserve to rein in stimulus measures that have spurred fund flows into emerging markets. Bonds gained.

Claims for jobless benefits in the world’s largest economy unexpectedly dropped to the lowest level in more than five years, an official report showed yesterday. The Dollar Index, which tracks the greenback against six counterparts, rose the most since April 17 yesterday as the yen dropped past 100 per dollar for the first time in more than four years. The rupee’s drop was limited as a government report showed factory output expanded at the fastest pace in five months.

“Currencies should come under clear downward pressure due to the strength of the dollar in global markets,” analysts at Credit Agricole, including Hong Kong-based Dariusz Kowalczyk, wrote in a report today.

The rupee declined 1 percent to 54.8000 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 54.8050 earlier, the weakest since April 8. The currency dropped 1.6 percent this week. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose 39 basis points, or 0.39 percentage point, today to 8.29 percent.

Global investors have poured $17.6 billion into Indian stocks and bonds this year, exchange data show. Bank of Japan Governor Haruhiko Kuroda pledged in April to double monthly bond purchases and scoop up longer-term debt to reach a 2 percent annual inflation goal, debasing the yen.

Factory Output

India’s industrial production rose 2.5 percent in in March from a year earlier, after a revised 0.5 percent increase the previous month, official data showed today. The median of 26 estimates in a Bloomberg survey was for a 2.4 percent gain.

The yield on the 8.15 percent bonds due June 2022 fell two basis points to 7.59 percent in Mumbai, according to the central bank’s trading system. That is the lowest level for a benchmark 10-year note since July 2010.

The finance ministry sold 150 billion rupees ($2.7 billion) of bonds today. The government may start selling a new benchmark note maturing in 2023 this month, according to two finance ministry officials with direct knowledge of the matter, who asked not to be identified before a public announcement.

Three-month onshore rupee forwards traded at 55.59 per dollar, compared with 55.22 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.68 versus 54.90. 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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