Rupee Slips as Fed Taper Concern Outweighs Inflation Optimism

India’s rupee snapped a two-day gain as speculation fueled by U.S. data that the Federal Reserve will further cut stimulus prevailed over a local report showing inflation in Asia’s third-largest economy is easing.

U.S. retail sales rose 0.2 percent in December, beating the 0.1 percent gain predicted by economists in a Bloomberg survey. India’s wholesale prices increased 6.16 percent last month from a year earlier, climbing the least since July. The median estimate in a Bloomberg survey was for a 6.99 percent advance.

The rupee fell 0.1 percent from Jan. 13 to 61.5475 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. The local currency market was shut yesterday for a holiday. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 14 basis points, or 0.14 percentage point, to 8.52 percent. The rate has dropped from 22.24 percent on Aug. 28 when the rupee plunged to a record 68.845 per dollar.

The taper concerns have “hurt emerging market equities and currencies,” analysts at Edelweiss Financial Advisors Ltd., including Milind Vora in Mumbai, wrote in a research report today. “But India has shown significant resilience. The dollar-rupee has stabilized.”

Consumer prices rose 9.87 percent in December, official data showed Jan. 13, slower than the 10.06 percent estimated in a separate Bloomberg survey. The RBI’s Jan. 28 policy review comes a day before the Federal Open Market Committee is due to conclude its two-day meeting.

RBI ‘Confident’

This week, India’s central bank eased some trading curbs imposed as the rupee depreciated in the past two years. Investors can conditionally cancel and rebook forward contracts with remaining maturities of one year or less, the RBI said in a statement after the market shut on Jan. 13.

This is a sign that policy makers are confident about the currency’s relative stability, Radhika Rao, an economist at DBS Bank Ltd. in Singapore, wrote in a research report today.

Three-month offshore non-deliverable forwards slipped 0.2 percent from yesterday to 62.69 per dollar, data compiled by Bloomberg show. 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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