Rupee in Longest Losing Run Since 2007 as Fed Drives Funds Away

  • India’s currency depreciates 1.8 percent over 9 days
  • Foreign holdings of debt decline for six straight days

The rupee dropped for a ninth day, the longest run of losses since November 2007, as rising odds of a U.S. interest-rate increase spurred outflows from Indian debt.

Overseas holdings of rupee-denominated bonds fell for a sixth day Monday, as more Federal Reserve officials weighed in with comments that supported the case for higher U.S. borrowing costs. That’s after minutes of the Federal Open Market Committee’s April meeting released last week showed most officials said at the gathering that a move in June would be warranted. Odds of higher rates next month are now at 32 percent, up from 4 percent at the start of last week, Fed Funds futures show.

The rupee weakened 0.4 percent to 67.7550 a dollar in Mumbai, taking its loss since May 11 to 1.8 percent, according to prices from local banks compiled by Bloomberg. The currency has declined 2.4 percent this year in Asia’s worst performance.

“The less dovish undertones of the FOMC minutes have raised expectations of a June/July rate hike,” Radhika Rao, an economist at DBS Bank Ltd. in Singapore, wrote in a report Tuesday. “As these odds build, the fallout on the rupee and slowing portfolio flows are under watch,” she wrote, adding that interest in Indian debt has also been “hurt by the limited visibility for rate cuts” by the Reserve Bank of India after inflation accelerated.

Even so, the rupee is likely to be the best performer in Asia this year, according to 43 percent of the more than 300 corporate and finance executives polled by Bloomberg at an event in Mumbai earlier this month.

Foreign holdings of rupee government and corporate notes fell by 52.6 billion rupees ($777 million) in the last six sessions, the longest streak of outflows since February, data from National Securities Depository Ltd. show. Overseas investors sold $47.4 million more local shares than they bought last week.

Indian sovereign bonds were steady Tuesday, with the yield on notes due January 2026 at 7.47 percent, prices from the central bank’s trading system show. The S&P BSE Sensex index of shares halted a four-day decline to rise 0.3 percent.

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