Rupee Falls to Two-Week Low After Fed Ends Bond-Buying ProgramKartik Goyal
India’s rupee fell to a two-week low on concern fund flows to emerging markets will slow as the Federal Reserve moves closer to raising interest rates after ending its asset-purchase program.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, advanced 0.2 percent today after a 0.6 percent gain yesterday that was its biggest since Oct. 3. Traders pushed up odds for an interest-rate increase next year as the Fed cited “solid job gains” in a statement released after its two-day meeting yesterday, even as it maintained its pledge to keep borrowing costs low for a “considerable time.”
“The Fed statement was more hawkish than expected,” said Vicky Sajnani, Mumbai-based assistant vice president for commodities and currencies at JM Financial Services Ltd. “The concern is that the liquidity tap is not going to be around for long, and that is weighing on the markets.”
The rupee declined 0.2 percent to 61.4550 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. It touched 61.5550 earlier, its weakest level since Oct. 17. The rupee was relatively unscathed compared with Asian peers like South Korea’s won and Indonesia’s rupiah, which fell 0.8 percent and 0.5 percent, respectively.
The odds of the Fed’s benchmark interest rate being increased by October 2015 climbed to 75 percent, from 68 percent at the end of last week, based on futures prices.
The yield on India’s 8.4 percent sovereign bonds due July 2024 fell three basis points to 8.29 percent, the lowest level for benchmark 10-year debt since September 2013, according to prices from the central bank’s trading system.
One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, rose three basis points, or 0.03 percentage point, to 6.27 percent.
Three-month offshore non-deliverable forwards declined 0.3 percent to 62.32 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.