Rupee in Worst Streak Since August as Fed Spurs Outflow Concern

  • Indian currency drops 0.6 percent Thursday, most since Feb. 11
  • Rupee could go to as low as 68.50 per dollar by year-end: RBL

India’s rupee fell for a sixth day, the longest losing run since August, amid speculation the Federal Reserve will raise interest rates as early as next month, sparking concern investors will sell emerging-market assets.

Minutes of the April 26-27 Federal Open Market Committee meeting released Wednesday in Washington showed most officials said at the gathering that a move in June would be warranted if economic data indicate stronger growth and inflation. That follows several speeches by regional Fed bank presidents warning investors not to dismiss a mid-year hike after the odds of such a move edged close to zero. Foreign holdings of rupee-denominated debt have fallen this week at the fastest pace since February.

“The FOMC minutes have prompted a selloff in the emerging-market space and that’s translated into a weaker rupee,” said Rohan Lasrado, Mumbai-based head of foreign-exchange trading at RBL Bank Ltd. “The rupee is likely to retreat further on the back of dwindling flows and a stronger dollar.”

The Indian currency dropped 0.6 percent, the most since Feb. 11, to 67.3675 a dollar in Mumbai, according to prices from local banks compiled by Bloomberg. That took its decline since May 11 to 1.2 percent. The rupee fell to 67.3925 earlier Thursday, the weakest level since March 16.

Lasrado expects the rupee to slide to as low 68.50 a dollar by the end of 2016. The currency’s recent losses have been fueled also by a May 13 report that showed Indian exports contracted 6.7 percent in April from a year ago, a 17th month of declines. Foreign holdings of Indian government and corporate bonds fell by 35.5 billion rupees ($527 million) in the last three days, the most for such a period since February, National Securities Depository Ltd. data show.

Prime Minister Narendra Modi’s main national opponents lost control of two Indian states on Thursday, election results showed, diluting their ability to thwart legislation that’s key to his reform agenda.

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, climbed to a seven-week high. Odds for a June U.S. rate hike have surged to 32 percent from 4 percent at the start of this week, Fed Funds futures show.

Sovereign bonds rose, with the yield on notes due January 2026 falling one basis point to 7.47 percent, according to prices from the central bank’s trading system. It has risen two basis points this week.

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