India Rupee Pares Decline on Suspected Central Bank Intervention

  • Sovereign bonds slump, led by shorter-maturity notes
  • Investors cautious ahead of Monday's federal budget: STCI

The rupee pared declines from near a record low as traders said state-run lenders sold the greenback on behalf of the Reserve Bank of India.

The currency ended 0.2 percent lower at 68.7050 a dollar in Mumbai, according to prices from local banks compiled by Bloomberg. It dropped to as low as 68.785 earlier, near an unprecedented 68.845 seen in August 2013. The S&P BSE Sensex index of shares slid 0.5 percent, reversing a gain of as much as 0.2 percent. Sovereign bonds also fell.

“The central bank was seen selling dollars around the 68.78 level,” said Arnab Sardar, a currency trader at Dhanlaxmi Bank in Mumbai. “The rupee’s drop was worsened by the losses in stocks.”

The rupee has slumped 3.7 percent in 2016, the worst performance in Asia after the South Korean won. The declines have come as foreign funds cut holdings of Indian stocks by $2.4 billion this year amid a broader emerging-market selloff and fading investor confidence in Prime Minister Narendra Modi’s ability to push through economic reforms.

“The central bank has been intervening actively,” said Rohan Lasrado, head of foreign-exchange trading at RBL Bank Ltd. in Mumbai. “Capital outflows have persisted and the currency would have breached the previous record if not for the intervention.”

Bonds Slide

Shorter-maturity bonds led losses in sovereign notes on Thursday amid concern the government will struggle to meet its fiscal targets as it prepares to unveil the federal budget on Monday for the year starting April 1. The widening spread between yields on bonds issued by Indian federal and state governments has also soured demand for sovereign securities.

Railway Minister Suresh Prabhu proposed increasing the outlay for the world’s fourth-largest network by 21 percent to 1.2 trillion rupees ($17.4 billion). The railways plans to borrow about 200 billion rupees in the year starting April 1, according to people familiar with the matter. That’s up from an estimated 176.6 billion rupees for the 12 months ending March 31.

The yield on the 7.28 percent notes due June 2019 jumped 10 basis points to 7.82 percent. That on debt maturing in 2020 also climbed 10 basis points to 8 percent, data from central bank’s trading system show. The yield on 10-year benchmark bonds maturing January 2026 rose three basis points to 7.86 percent.

“No one wants to carry the risk” ahead of the budget, said Pradeep Madhav, managing director at STCI Primary Dealer Ltd. in Mumbai. “The bond market is in a freefall.”

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