Rupee Leads November Losses in Asia as Outflows From India Climb

  • Modi's state election loss, U.S. rate bets hurt currency: ANZ
  • Ten-year sovereign bonds complete second straight monthly drop

India’s rupee led losses in Asia in November as outflows from local bonds and equities climbed amid increased prospects of a rise in U.S. interest rates this year.

Investor sentiment soured as Prime Minister Narendra Modi’s party lost an election in the key state of Bihar, which makes it harder for his government to push through financial reforms to boost the economy. Foreign holdings of rupee-denominated debt fell 40.6 billion rupees ($609 million) this month, the most since May, data from the National Securities Depository Ltd. show. Stocks have seen withdrawals of about $793 million.

The rupee declined 2.1 percent in November to 66.6675 a dollar in Mumbai, according to prices from local banks compiled by Bloomberg. The currency rose 0.1 percent on Monday after falling to as low as 66.8850 on Friday, the weakest level since September 2013.

“The defeat in the Bihar state elections was seen as a setback by foreign investors, whose reaction was to reduce their exposure to Indian assets,” said Khoon Goh, a senior foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “The stronger dollar environment on expectations of Federal Reserve rate hikes also led to the weakening in the rupee.”

Futures contracts indicate there is a 76 percent chance the U.S. central bank will act at its Dec. 15-16 meeting, a move that will reduce the allure of emerging-market assets. The odds were at about 50 percent at the end of October.

Bonds Slide

Indian sovereign bonds posted a second straight month of losses, with the yield on the securities due May 2025 rising 15 basis points from Oct. 30 and two basis points on Monday to 7.79 percent, according to prices from the central bank’s trading system. Its 25-basis point jump since the end of September is the biggest two-month rise for a benchmark 10-year security in two years.

A Bloomberg survey of economists suggests the Reserve Bank of India will hold its repurchase rate at 6.75 percent at a policy meeting on Tuesday, after cutting it by 125 basis points this year, including a larger-than-estimated 50-basis point reduction on Sept. 29. A report due after the close of markets on Monday will probably show India’s economy grew 7.3 percent last quarter, according to a separate Bloomberg survey.

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