Rupee Completes Ninth Weekly Loss as Outflows Pressure Deficit

India’s rupee completed its ninth weekly drop, the longest losing streak in a year, after foreign funds continued to pull money from the nation’s debt as the Federal Reserve prepares to phase out its stimulus.

Overseas investors cut holdings of rupee bonds by $562 million in the first three days of this week after withdrawing a record $5.4 billion in June, exchange data show. Fed Chairman Ben S. Bernanke signaled last month $85 billion a month of debt buying, which has fueled funds flows to emerging markets, could be tapered this year and ended in 2014. Goldman Sachs Group Inc. cut its rupee forecast, saying India may find it tough to lure capital to offset its record current-account deficit.

“The worsening funding environment for emerging markets could continue to put currencies which have high current-account deficits, such as the rupee, under pressure,” Tushar Poddar, a Goldman economist in Mumbai, wrote in a report released yesterday. “Capital outflows from debt have had a large impact on the rupee.”

The Indian currency fell 1.4 percent this week to 60.2400 per dollar in Mumbai, the worst performance in Asia, according to prices from local banks compiled by Bloomberg. It dropped 0.2 percent today, and touched a record low of 60.765 on June 26. Goldman sees the rupee at 60 per dollar in 12 months, compared with an earlier prediction of 56. It will depreciate to 62 by end-2014, the lender forecasts.

Yield Spread

The rupee pared losses today, after earlier dropping as much as 0.8 percent, on speculation the central bank sold dollars, two traders said, asking not to be named as the information isn’t public. The Reserve Bank of India intervenes only to manage volatility and doesn’t have an exchange-rate target or band, Governor Duvvuri Subbarao said yesterday.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose 35 basis points, or 0.35 percentage point, this week to 12.86 percent. It rose 21 basis points today.

India’s 10-year sovereign debt offers a premium of 493 basis points over U.S. Treasuries, down from this year’s high of 622 on April 5, according to data compiled by Bloomberg. The shortfall in the Asian nation’s broadest measure of trade rose to an all-time high of 4.8 percent of gross domestic product in the year ended March 31, official data show.

Three-month onshore rupee forwards fell 1.9 percent this week to 61.41 per dollar, according to data compiled by Bloomberg. Offshore non-deliverable contracts dropped 1.3 percent to 61.48. 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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