India’s Rupee Declines Most in a Week After Inflation Quickens

India’s rupee fell the most in a week after inflation quickened more than analysts predicted and factory output missed estimates.

Consumer prices rose 7.96 percent in July from a year earlier, official data showed after the market shut yesterday. That’s the biggest increase in two months and higher than the 7.4 percent forecast in a Bloomberg survey. A separate report showed industrial production rose 3.4 percent in June, less than the 5.6 percent gain predicted in another survey. The Reserve Bank of India will keep borrowing costs unchanged in the year through March, Australia & New Zealand Banking Group Ltd. said.

“The jump in inflation is disappointing,” Devika Mehndiratta, an economist with ANZ in Singapore, wrote in a research note today. “Though industrial production growth disappointed, a deteriorating inflation outlook will effectively tie the hands of the RBI.”

The rupee fell 0.2 percent to 61.2250 per dollar in Mumbai, prices from local banks compiled by Bloomberg show. That’s the biggest drop since Aug. 6.

Since taking office in September, Reserve Bank of India Governor Raghuram Rajan has vowed to keep inflation low and stable to maintain confidence in the currency.

Bonds Rise

Rajan left the RBI’s benchmark repurchase rate unchanged at 8 percent on Aug. 5 and flagged risks to inflation from deficient monsoon rains, the government’s price support for crops and oil prices amid global conflicts.

The yield on the 8.4 percent government notes due July 2024 dropped eight basis points to 8.54 percent, the lowest level since Aug. 4, according to the central bank’s trading system.

“Bonds gained mainly on easing liquidity concerns” after the government cut the size of this week’s bond sale, said Debendra Kumar Dash, a fixed-income trader at DCB Bank Ltd. in Mumbai. “Continuous cash injections” by the RBI spurred demand for existing debt, he said.

India plans to sell 80 billion rupees of bonds tomorrow, compared with an earlier indication of selling 140 billion rupees of securities, according to the central bank. The RBI added 150.07 billion rupees through a seven-day term repo today after pumping in 96.56 billion rupees via two one-day repo auctions over the last two days.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, were little changed at 8.49 percent, data compiled by Bloomberg show.

Three-month offshore non-deliverable forward contracts on the rupee fell 0.2 percent to 62.20 per dollar, according to data compiled by Bloomberg. 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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