India Rupee Rebounds From Near Record Low on Central Bank StepsJeanette Rodrigues
India’s rupee rebounded from near a record low after the central bank eased overseas borrowing rules and on speculation the monetary authority sold dollars.
The rupee advanced 1 percent to 67.09 per dollar in Mumbai, prices from local banks compiled by Bloomberg show. It fell as much as 1.3 percent to 68.62 earlier, and has weakened 11.5 percent this quarter, the worst performance among 24 emerging-market currencies tracked by Bloomberg.
The Reserve Bank of India likely intervened to prevent the rupee from dropping past its all-time low of 68.8450 per dollar reached last week, according to two traders who asked not to be named as the information isn’t public. The monetary authority, under new governor Raghuram Rajan, allowed companies to borrow from foreign shareholders, according to a statement today. The rupee weakened earlier as oil prices surged on concern the U.S. is moving closer to striking Syria.
“The measures announced by the RBI are playing to market expectations that Rajan will look to improve sentiment,” said Harihar Krishnamoorthy, treasurer at the Indian unit of FirstRand Ltd. in Mumbai.
The RBI also clarified in a separate statement today that local companies can continue to invest as much as 400 percent of their net worth abroad if the funds come from offshore loans.
Rajan, who predicted the 2008 global financial crisis and is a former International Monetary Fund chief economist, has been appointed governor for three years. He replaced Duvvuri Subbarao, who in July took steps to restrict cash supply in an attempt to boost the rupee.
Brent crude climbed 1.2 percent yesterday as House of Representatives Speaker John Boehner and Majority Leader Eric Cantor backed President Barack Obama’s call for military action. The rupee could sink to levels beyond 70, Arvind Virmani, one of the central bank’s advisers, said in an e-mail yesterday. The RBI’s inability to stem the decline in the rupee has hurt its credibility, he said.
Higher crude prices and a weaker rupee threaten to stoke inflation in India, which imports about 80 percent of its oil. The nation had a record current-account deficit in the year ended March 31 and the economy grew last quarter at the slowest pace since 2009, according to official data.
One-month implied volatility in the rupee, a measure of expected moves in the exchange rate used to price options, rose 62 basis points to 22.38 percent.
Three-month onshore rupee forwards rose 1.4 percent to 68.51 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts advanced 1.6 percent to 69.17. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.