India Rupee Completes Worst Week Since 2011 After Drop to Record

India’s rupee completed its biggest weekly loss since September 2011 after plunging to a record yesterday, as the U.S. signaled it is prepared to phase out a stimulus program that contributed to inflows.

The currency dropped 2.9 percent from June 14 to 59.2675 per dollar in Mumbai, the biggest decline since the five days through Sept. 23, 2011, according to prices from local banks compiled by Bloomberg. The 14-day relative-strength index was at 73, above the 70 threshold that signals the greenback’s rally is poised to end.

The rupee will probably strengthen to 59 per dollar “in a few days” after touching an unprecedented 59.98 as the sell-off seems excessive and on speculation the Reserve Bank of India will intervene, according to HDFC Bank Ltd. India is prepared to curb currency volatility, Raghuram Rajan, chief economic adviser at the finance ministry, said in New Delhi yesterday.

“Fundamentally, we still have a current-account deficit and that will need financing through inflows,” said Ashtosh Raina, head of foreign-exchange trading at HDFC Bank in Mumbai. “However, the rupee does seem overstretched and we seem set for a correction from these levels.”

The currency rose 0.5 percent today. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 167 basis points, or 1.67 percentage points, this week to 12.57 percent.

Rupee Debt

India’s central bank probably sold dollars around the rupee’s record low yesterday to prevent the currency from sliding past 60 a dollar, three traders said, asking not to be named as the information isn’t public.

The South Asia nation needs capital inflows to bridge a shortfall in its current account, the broadest measure of trade, which the government estimates widened to a record of around 5 percent of gross domestic product in the year ended March 31. A weaker currency risks stoking inflation in India, which ships in 80 percent of its oil.

The Federal Reserve said June 19 it could taper its $85 billion in monthly bond buying later this year and halt purchases in mid-2014 as long as the world’s largest economy performs in line with central bank projections.

Global funds have cut holdings of rupee debt by $5.3 billion since May 22, when Fed Chairman Ben S. Bernanke first signaled that stimulus may be cut back.

India sold 391.7 billion rupees ($6.6 billion) of debt-purchase quotas to foreign investors yesterday, lower than the target of 420.2 billion rupees, two people familiar with the matter said, asking not to be identified as they aren’t authorized to speak to the media. That’s the first time since October that an auction has been undersubscribed.

Three-month onshore rupee forwards dropped 2.9 percent since June 14 to 60.15 per dollar, according to data compiled by Bloomberg. Offshore non-deliverable contracts fell 3 percent to 60.40. 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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