Rupee Has Monthly Loss on Emerging Market Selloff as Fed Tapers

India’s rupee capped a monthly loss amid a selloff in emerging-market assets as the U.S. further cut monetary stimulus that has boosted capital inflows.

The Federal Reserve said on Jan. 29 it will trim monthly bond purchases by $10 billion to $65 billion from February, after a similar reduction this month. The Reserve Bank of India boosted the repurchase rate to 8 percent from 7.75 percent on Jan. 28, joining policy makers from Turkey to South Africa in tightening as the Fed trimmed debt purchases.

“Rupee was hit largely because of selloff in emerging markets as Fed continued taper,” said Naveen Raghuvanshi, a currency trader at Development Credit Bank Ltd. in Mumbai. “However, the rupee limited its downside as the RBI surprisingly raised the benchmark rate.”

The rupee weakened 1.4 percent this month and 0.1 percent today to 62.6575 per dollar, according to prices from local banks compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, advanced 46 basis points, or 0.46 percentage point, in January to 10.65 percent. It rose 16 basis points today.

‘Broken Down’

RBI Governor Raghuram Rajan warned of a breakdown in global policy coordination as the Fed pared stimulus for the second straight meeting.

“International monetary cooperation has broken down,” Rajan, 50, said yesterday in an interview in Mumbai with Bloomberg TV India. “Industrial countries have to play a part in restoring that, and they can’t at this point wash their hands off and say we’ll do what we need to and you do the adjustment.”

Three-month offshore non-deliverable forwards in the rupee were little changed at 64.08 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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