Rupee Drops After Current-Account Deficit Rises to One-Year High

India’s rupee declined the most in almost four weeks after the central bank reported the widest current-account deficit in a year.

The April-June shortfall in the broadest measure of trade was $7.8 billion, up from $1.2 billion the previous quarter, the Reserve Bank of India said in a statement yesterday. That’s still lower than the $21.8 billion gap a year earlier.

“The higher current-account deficit is causing some nervousness among importers and contributed to the rupee’s decline,” said Ankur Jhaveri, co-head of currency and rates at Edelweiss Financial Services Ltd. in Mumbai. “The rupee is also following the weakness in Asian currencies on the back of a stronger dollar.”

The Indian currency lost 0.3 percent to close at 60.6850 per dollar in Mumbai, prices from local banks compiled by Bloomberg show. That’s the biggest drop since Aug. 6. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, rose to the highest level since January.

Three-month implied volatility, a measure of expected moves in the rupee’s exchange rate used to price options, fell five basis points, or 0.05 percentage point, to 7.01 percent in Mumbai, according to data compiled by Bloomberg.

Three-month offshore non-deliverable forwards on the rupee declined 0.3 percent to 61.59 per dollar. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in the U.S. currency.

Ten-year government bonds gained on speculation demand for debt will rise amid improving cash supply in the banking system.

The yield on the 8.4 percent government bonds due July 2024 dropped three basis points, or 0.03 percentage points, to 8.52 percent in Mumbai today, the most since Aug. 20, according to prices from the central bank’s trading system.

Indian lenders parked a net 225.61 billion rupees ($3.7 billion) via daily liquidity auctions with the RBI yesterday, the most since October 2011, data compiled by Bloomberg show. That signals “a cash surplus” in the financial system, which is a “short-term positive” for bonds, said Harish Agarwal, a fixed-income trader at FirstRand Ltd. in Mumbai.

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