India’s Rupee Drops to Two-Month Low in Emerging-Markets Selloff

India’s rupee dropped to the lowest level in more than two months on concern a selloff in emerging-market assets will deepen as the Federal Reserve reviews its stimulus this week.

The MSCI Asia Pacific Index dropped 2.2 percent and the Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, fell for a third day during Asian trading hours after a private report last week signaled manufacturing in China contracted. Fed policy makers may give an indication of plans for a further cut in bond purchases at the end of a Jan. 28-29 meeting, after they began paring the program this month. The Reserve Bank of India will review borrowing costs tomorrow.

“The selloff in emerging-market currencies and the weakness in Asian equities is likely to keep the rupee under strong pressure against the dollar,” analysts at Edelweiss Securities Ltd. including Vinay Khattar in Mumbai wrote in a research report today. Investors are awaiting policy statements from the Fed and the RBI, they wrote.

The rupee fell 0.7 percent to 63.1025 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 63.3050 earlier, the weakest since Nov. 14. The currency dropped 1.8 percent last week, the most since the five days ended Aug. 30 when it plunged to a record 68.845.

The preliminary reading for a gauge of China’s manufacturing in January was 49.6, according to a Jan. 23 report by HSBC Holdings Plc and Markit Economics, compared with a final figure of 50.5 in December. A number below 50 indicates contraction.

RBI Meeting

The RBI will hold the repurchase rate at 7.75 percent at a Jan. 28 review, according to 42 of 45 economists in a Bloomberg survey. The rest predict an increase to 8 percent.

One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, surged 110 basis points, or 1.10 percentage points, to 9.49 percent. Three-month offshore non-deliverable forwards in the rupee declined 1 percent today to 64.62 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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