Rupee Volatility Jumps to Three-Week High as India Outflows Rise

A gauge of expected swings in the rupee climbed to the highest level in three weeks as foreign holdings of Indian stocks and bonds declined.

Investors are turning more risk averse as a selloff in China amid growing concern over the health of Asia’s largest economy rattles emerging markets. The People’s Bank of China cut the yuan’s reference rate by the most since August on Thursday, adding to speculation policy makers are favoring currency depreciation to revive growth. That triggered losses in the CSI 300 Index of shares, forcing this week’s second trading halt.

The rupee’s one-month implied volatility increased 21 basis points to 6.17 percent in Mumbai, data compiled by Bloomberg show. The gauge, used to price options, climbed to 6.18 percent earlier, the highest since Dec. 17. In the spot market, the currency weakened 0.1 percent to 66.9250 a dollar after falling to a three-week low of 66.9625, according to prices from local banks compiled by Bloomberg.

“China is causing a ripple effect,” said Subramanian Sharma, a director at Mumbai-based Greenback Forex Services Pvt. “Volatility in both equity and currency markets is on the rise.”

Global holdings of rupee-denominated debt have fallen 9.65 billion rupees ($144 million) this week, the latest data from National Securities Depository Ltd. show. Stocks have seen withdrawals of $140.4 million.

The S&P BSE Sensex index of Indian shares slumped 2.2 percent to close at its lowest since June. The yield on the sovereign notes due May 2025 was unchanged at 7.74 percent, according to prices from the central bank’s trading system.

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