India Rupee Approaches Record Low on Concern Outflow to Continue

The rupee weakened to within 0.9 percent of its all-time low on concern overseas investors will pull more money from local assets, leaving the currency vulnerable to a record current-account deficit.

The rupee slipped for a third day as investors waited for data on U.S. jobless claims and payrolls due this week to gauge when the Federal Reserve will begin paring its $85 billion of monthly bond purchases. Overseas funds sold a net $7.1 billion of Indian assets in June as Fed Chairman Ben S. Bernanke signaled policy makers could scale back asset buying if the U.S. economy improves in line with forecasts.

“The outflows are a concern, we are seeing demand for dollars from foreign banks,” said Naveen Raghuvanshi, a trader at Development Credit Bank Ltd. in Mumbai. “The Reserve Bank of India may intervene to support the rupee.”

The currency weakened 0.9 percent to 60.2200 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. It fell to an unprecedented 60.7650 on June 26. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose 68 basis points, or 0.68 percentage point, to 12.92 percent.

Foreign-Currency Exposure

The RBI yesterday published draft guidelines on how banks should monitor companies’ unhedged foreign-currency exposure and include this risk in lending costs. The monetary authority has sought feedback on the proposals by Aug. 2, according to a statement on its website.

Data today from the ADP Research Institute may indicate U.S. companies added 160,000 jobs in June, before the Labor Department’s monthly payrolls report at the end of the week that is forecast to show an increase of 165,000 positions.

The shortfall in India’s current account, the broadest measure of trade, widened to a record 4.8 percent of gross domestic product in the year ended March 31, official data show. The government will need more than $75 billion to fund the gap in the 12 months through March 2014, Finance Minister Palaniappan Chidambaram estimates.

Three-month onshore rupee forwards fell 1.1 percent to 61.27 per dollar, according to data compiled by Bloomberg. Offshore non-deliverable contracts dropped 1 percent to 61.35. 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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