Rupee Falls With Bonds as Coal-Permit Rule Spurs Deficit Concern

India’s rupee headed for the biggest weekly drop in almost two months on concern companies may have to source higher-priced coal from overseas after a court ruling put the nation’s mines up for auction.

The Supreme Court on Sept. 24 canceled 214 of 218 coal-mine permits that were designated to companies such as Jindal Steel & Power Ltd. and Hindalco Industries Ltd. over the past two decades after declaring the allocations illegal on Aug. 25. Some of the mines may go up for auction and the current owners will either have to rebid or source coal from abroad, which could potentially widen India’s trade deficit from $10.8 billion in August, after it shrank from $12.2 billion in July.

“The major concern is India’s trade deficit may widen on higher imports due to mine cancellations,” said Anish Vyas, a Mumbai-based currency analyst at Angel Broking Ltd. The rupee also weakened on higher dollar demand from oil importers, he said, adding that fund inflows from overseas and sales of the U.S. currency by the central bank will limit losses.

The currency declined 1.1 percent this week, the steepest loss since Aug. 1, to 61.5250 per dollar as of 10:37 a.m. in Mumbai, prices from local banks compiled by Bloomberg show. The rupee dropped 0.3 percent today and earlier reached a seven-week low of 61.5375.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, rallied for a sixth week on rising prospects the Federal Reserve will increase its benchmark interest rate in 2015. The currency measure reached a four-year high yesterday.

About three dozen mines that are producing the fuel can operate for six months before they are auctioned, a panel headed by Chief Justice R.M. Lodha said.

Bonds, Swaps

Government bonds fell this week, halting a three-week gain. The yield on the 8.4 percent notes due July 2024 rose two basis point, or 0.02 percentage point, to 8.48 percent, according to prices from the central bank’s trading system. It was little changed today.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, were little changed at 8.41 percent and dropped two basis points from Sept. 19, data compiled by Bloomberg show.

One-month implied volatility in the rupee, a gauge of expected moves used to price options, rose 23 basis points to 6.73 percent today and declined 42 basis points this week.

Three-month offshore non-deliverable rupee forwards retreated 1 percent from a week ago and 0.3 percent today to 62.44 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.

Before it's here, it's on the Bloomberg Terminal.