Rupee Drops Second Day as Inflation Outweighs U.S. Budget Talks

India’s rupee fell for a second day as higher-than-estimated inflation data outweighed optimism that U.S. lawmakers’ progress on talks to avoid a debt default will boost emerging-market inflows.

Wholesale prices rose 6.46 percent in September from a year earlier, higher than the 6 percent increase predicted by economists in a Bloomberg survey. Consumer prices accelerated 9.84 percent versus a 9.5 percent forecast, official data showed yesterday. Politicians in the U.S. are working on a proposal to suspend the debt ceiling through Feb. 7 and fund the government until Jan. 15, a person familiar with the talks said. The U.S. will not default, former Treasury Secretary Lawrence Summers said in Seoul today.

“Higher-than-expected WPI and CPI inflation don’t bode well for the currency,” L. Subramanian, an analyst at ICICI Bank Ltd. in Mumbai, wrote in a research report today. “Risk sentiment is positive” globally due to the progress in U.S. debt talks, he wrote.

The rupee weakened 0.5 percent to 61.8450 per dollar in Mumbai, after gaining as much as 0.5 percent intraday, according to prices from local banks compiled by Bloomberg. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 29 basis points, or 0.29 percentage point, to 14.58 percent. Indian markets are shut tomorrow for a public holiday.

U.S. Senate Democratic and Republican leaders said yesterday they have made significant progress toward an accord. President Barack Obama postponed a meeting with Congressional leaders to give lawmakers more time to reach an agreement.

One-month onshore rupee forwards slid 0.8 percent to 62.42 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts declined 0.5 percent to 62.31. 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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