India’s Rupee Snaps 3-Day Gain as Importers Seen Buying Dollars

India’s rupee snapped a three-day gain on speculation local importers are stepping up dollar purchases to pay month-end bills.

Demand for the greenback is to settle obligations, analysts at Edelweiss Financial Advisors Ltd., including Mumbai-based Vinay Khattar, wrote in a research report today. Steadying the currency has become the priority for monetary policy and more steps are needed to curb the nation’s current-account deficit, the Reserve Bank of India said in an economic review today.

The rupee declined 0.6 percent to 59.4175 per dollar in Mumbai, after strengthening 0.5 percent last week, prices from local banks compiled by Bloomberg show. The currency has lost 7.5 percent this year, the worst performance in Asia after Japan’s yen, and touched a record low 61.2125 on July 8.

The RBI, which reviews its benchmark repurchase rate tomorrow at a meeting, has raised two interest rates, restricted lenders’ access to funds and curbed trades in currency derivatives to support the currency.

“We expect the RBI to reinforce that recent liquidity tightening was to shore up the rupee, rather than cool the economy,” which is growing at the slowest pace in a decade, said Vishnu Varathan, an economist at Mizuho Bank Ltd. in Singapore.

The RBI will keep its benchmark repurchase rate at 7.25 percent tomorrow, according to 31 of 32 economists surveyed by Bloomberg. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose eight basis points, or 0.08 percentage point, to 11.77 percent. India’s current-account gap widened to an unprecedented 4.8 percent of gross domestic product in the year ended March 31, official data show.

Fed Tapering

The recent “liquidity tightening measures” provide “at best some breathing time,” the RBI said, making it important to push through structural reforms to improve investor confidence.

Global funds have cut holdings of Indian debt by $8.9 billion since May 22, when the Federal Reserve signaled it could curb asset purchases that have boosted demand for emerging-market assets. The Federal Open Market Committee convenes July 30-31.

The International Monetary Fund said last week that exiting from the quantitative easing program could spur excessive interest-rate volatility and have “adverse global implications.” The Fed will start trimming bond purchases in September, according to a Bloomberg survey of economists, while Chairman Ben S. Bernanke has said it’s “way too early to make any judgment” as to whether policy makers will start tapering in September.

Three-month onshore rupee forwards fell 0.6 percent to 60.82 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts dropped 0.5 percent to 60.60. 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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