Rupee Swings Surge to Two-Month High as Dollar Outflows Seen

  • Currency ends little changed, snapping three-day decline
  • Kotak estimates the rupee will drop to 68 a dollar by end-2016

A gauge of expected swings in India’s rupee climbed to a two-month high amid concern over outflows from maturing dollar deposits.

An estimated $26 billion that the Reserve Bank of India raised in foreign-currency swaps from non-resident Indians to support the exchange rate in 2013 starts falling due this month, of which the central bank predicts about $20 billion will leave the country over four months. The RBI does not want to “give a blanket guarantee that there will be no volatility” due to the redemptions, but will do “what is necessary” to counter swings, it said last month.

A measure of the rupee’s one-month implied volatility, used to price options, rose 15 basis points to 5.71 percent in Mumbai, its highest close since July 12, data compiled by Bloomberg show. The currency ended little changed at 66.8950 per dollar, after declining 0.8 percent over the previous three days. Indian markets were shut Tuesday for a public holiday.

To read more about the outflows on account of maturing deposits, click here.

“There is concern about the maturity of FCNR deposits and that could be causing rupee volatility,” said Anindya Banerjee, associate vice president for currency derivatives at Kotak Securities Ltd. in Mumbai. “The rupee is likely to be volatile in the coming months and may drop to 68 against the dollar by the end of 2016.”

Emerging-market stocks and currencies retreated for a fourth day on Wednesday as the rally fueled by optimism the U.S will hold off on raising interest rates next week dissipated. The premium investors demand to own emerging-market debt over U.S. Treasuries widened three basis points to 337 basis points, according to JPMorgan Chase & Co. indexes.

Rupee sovereign bonds also declined, with the yield on the new benchmark 10-year notes maturing September 2026 rising two basis points to 6.87 percent, according to prices from the central bank’s trading system.

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