India Rupee Drops to 11-Month Low on Dollar Demand, Stock Losses

India’s rupee slumped to an 11-month low as stocks declined and on speculation importers stepped up dollar purchases before the year end.

The currency weakened 1 percent to close at 62.9425 a dollar in Mumbai, according to prices from local banks compiled by Bloomberg. It touched 62.94 earlier, the lowest level since Jan. 28, and is the second-worst performer in Asia today after Indonesia’s rupiah. The S&P BSE Sensex, India’s benchmark equity gauge, retreated to a seven-week low while government bonds were steady after erasing earlier gains.

“Dollar demand from local oil companies to meet their year-end payments and a sell-off in equities is weighing on the rupee,” said Navin Raghuvanshi, a currency trader at DCB Bank Ltd. in Mumbai. India imports about 80 percent of its oil.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, has rallied 4.3 percent this quarter amid speculation the Federal Reserve is moving toward raising interest rates as the U.S. economy improves. The gauge rose 0.2 percent today, ahead of the Federal Open Market Committee’s two-day meeting that starts tomorrow.

Three-month offshore non-deliverable forwards for the rupee fell 0.5 percent to 63.87 a 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. One-month implied volatility, a measure of expected exchange-rate swings used to price options, climbed 36 basis points to 5.89 percent, data compiled by Bloomberg show.

“The rupee is now starting to succumb to the stronger dollar sentiment,” said Khoon Goh, a senior foreign-exchange strategist in Singapore at Australia & New Zealand Banking Group Ltd. “A combination of market participants reducing their long rupee exposure, together with thin liquidity, given we are nearing the end of the year, has exacerbated the moves.”

Government Bonds

Ten-year bonds erased earlier gains as the rupee’s losses deepened. The yield on the notes due July 2024 was little changed at 7.83 percent, according to prices from the Reserve Bank of India’s trading system.

The rate dropped to 7.78 percent earlier, the lowest level for benchmark 10-year debt since July 2013, amid speculation the central bank will cut borrowing costs after inflation slowed and factory output contracted.

India’s consumer price index increased 4.38 percent in November from a year earlier, the least since the gauge was created in early 2012, and industrial production fell the most in three years, official data showed after financial markets closed Dec. 12. Wholesale prices unexpectedly stagnated last month, a separate report revealed today.

Governor Raghuram Rajan, who left the central bank’s benchmark repurchase rate at 8 percent for a fifth meeting on Dec. 2, said on the day that “a change in the monetary policy stance is likely early next year” should improvements in India’s inflation and fiscal health continue. The 10-year yield has declined 22 basis points since.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, rose three basis points to 7.77 percent, data compiled by Bloomberg show.

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