Rupee Weakens to Two-Year Low as Indian Bonds Slide Before Fed

  • Crucial level breached as rupee beyond 67/dollar: FirstRand
  • Yield on 10-year notes climbs to highest level since August

India’s rupee dropped to its weakest level since September 2013 and sovereign bonds retreated on concern outflows from local assets will accelerate as the U.S. looks set to raise interest rates this week.

Foreign holdings of India’s local-currency notes have fallen by 11 billion rupees ($164 million) in December, according to National Securities Depository Ltd. data, after declining 46.9 billion rupees in November, the most since May. Stocks have seen withdrawals of $534 million this month. There’s a 76 percent probability that the Federal Reserve will increase borrowing costs at its Dec. 15-16 meeting, futures contracts show.

“The Fed meet remains the major event to watch out for,” said Paresh Nayar, Mumbai-based head of currency and money markets at the local unit of South African lender FirstRand Ltd. “With the currency above 67 per dollar, a crucial level has been breached.”

The rupee retreated for a second day, losing 0.3 percent to 67.10 a dollar in Mumbai, according to prices from local banks compiled by Bloomberg. The currency, which pared some of the early losses as traders said state-run lenders sold the greenback on behalf of the Reserve Bank of India, resumed its decline later in the day, falling to as low as 67.1275, its weakest level since Sept. 4, 2013.

Sovereign bonds dropped. The yield on notes due May 2025 climbed four basis points to 7.82 percent, the highest level since Aug. 24, according to prices from the RBI’s trading system. It has risen three basis points in December, after advancing 15 basis points last month in the biggest jump since June.

Consumer prices rose 5.41 percent in November from a year earlier after a 5 percent increase in October, according to data released after the close of markets.

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