Photographer: Dhiraj Singh/Bloomberg

Indian Rupee Falls to One-Week Low as Oil Importers Buy Dollars

  • Currency is down 2.8% this year in worst performance in Asia
  • Bill sale falls short of target for a second time this month

India’s rupee dropped to the lowest level in almost a week on speculation oil importers stepped up dollar purchases to pay bills as the end of the month approaches.

The currency fell 0.3 percent to 68.05 a dollar at close in Mumbai, according to prices from local banks compiled by Bloomberg. It declined to 68.08 earlier, the weakest since Jan. 21, and has slumped 2.8 percent this month in Asia’s worst performance. Indian markets were shut on Tuesday for a public holiday.

The Federal Reserve ends its first policy meeting of the year on Wednesday and investors will be scouring its statement for hints the monetary authority is backing away from the path of four potential interest-rate increases this year due to the turbulence in global markets. India sovereign notes gained even as a sale of treasury bills fell short of target for a second time this month, signaling investors may have demanded higher yields amid a cash crunch.

“There is a negative bias as month-end dollar demand from oil importers and the Fed meeting are weighing on the rupee,” said Gaurav Sharma, a senior currency analyst at Religare Commodities Ltd. in Noida, near New Delhi. “Traders will focus on the commentary to ascertain if there is any shift in stance in light of slowing growth in China and the crash in oil prices.”

Cash Crunch

The Reserve Bank of India, which manages the federal borrowing program, rejected all bids for 91-day notes at a Wednesday sale that aimed to raise 90 billion rupees ($1.3 billion), according to a central bank statement. It sold 60 billion rupees of 182-day notes as planned. A Jan. 6 auction was the first since May to fall short of the government’s goal.

“Tight liquidity is the primary reason for the pressure on money-market rates,” said R. Sivakumar, the Mumbai-based head of fixed income at Axis Asset Management Co., which oversees about 346 billion rupees. “Until there is some permanent injection of liquidity, pressure on short-term rates will continue.”

The cash squeeze is worsening as global investors pulled $1.7 billion from Indian stocks this month. RBI Governor Raghuram Rajan will step up purchases of the country’s sovereign bonds amid an emerging-market selloff, according to a Bloomberg survey. The authority will buy an additional $4 billion of rupee-denominated notes this quarter, on top of $1.5 billion already purchased in January, the survey showed. The RBI bought $1.5 billion of the debt in December, the first time it had done so since January 2014.

The yield on the government bonds due May 2025, snapped two sessions of advances to fall two basis points to 7.79 percent, prices from the RBI’s trading system show.

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