Rupee Posts Biggest Weekly Drop Since January on Fed Rate Bets

Updated on
  • India’s currency fell 1 percent in third week of declines
  • Edelweiss sees rupee rebounding to 67 per dollar by end-June

India’s rupee completed its worst weekly drop since January on speculation an increase in interest rates by the Federal Reserve will accelerate outflows from emerging-market assets.

Overseas holdings of local-currency debt fell by 42.8 billion rupees ($634 million) over the past four days, set for the biggest decline in 12 weeks, data from National Securities Depository Ltd. show. A gauge of developing-nation currencies slid for a third week after minutes of the Fed’s last meeting showed most officials thought a June rate hike would be appropriate if the U.S economy continues to improve. The odds of a move next month are 30 percent, up from 4 percent a week ago, Fed funds futures show.

“The rupee’s weakness has to be seen in the global backdrop, where the dollar has surged against emerging-market currencies,” said Bhupesh Bameta, head of research for currencies and rates at Edelweiss Financial Services Ltd. in Mumbai. “The Fed seems to be preparing the market, which had turned sanguine, but may not hike in June.”

The rupee retreated 1 percent from May 13 to 67.4475 a dollar in Mumbai, according to prices from local banks compiled by Bloomberg. That’s the biggest drop since the period ended Jan. 15. The currency fell 0.1 percent from Thursday and has weakened 1.9 percent this year in Asia’s worst performance. Edelweiss expects it to rebound to 67 by the end of June.

Sovereign bonds declined this week, with the yield on notes due January 2026 rising three basis points, the most since end-February, to 7.48 percent, prices from the Reserve Bank of India’s trading system show. It rose one basis point on Friday.

India sold 150 billion rupees of government securities as planned, according to a statement on the central bank’s website.

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