Volatility Surges as Rupee Completes Weekly Loss Amid Outflows

  • A gauge of expected currency swings rises most since June
  • There’s ‘weakening bias’ for rupee going forward: Edelweiss

India’s rupee completed a weekly loss with a gauge of expected currency swings jumping the most since June as foreign investors pared holdings of local stocks.

Overseas funds sold a net $107.4 million of Indian shares this week through Thursday, set for the biggest weekly outflow since early April, as emerging-market investors turned cautious ahead of central bank meetings in the U.S. and Japan. Rupee volatility has climbed as India stares at about $20 billion of funds leaving the country over four months on account of maturing of some foreign-currency deposits raised from non-resident Indians to support the exchange rate in 2013.

“The global risk-off sentiment is causing outflows and fueling volatility in the emerging-market currencies and the rupee has got caught in that,” said Bhupesh Bameta, head of research for currencies and rates at Edelweiss Financial Services Ltd. in Mumbai. “Going forward, there will be a weakening bias for the rupee given the FCNR outflows.”

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

The rupee retreated 0.5 percent from Sept. 9, the most since the five days ended June 24, to 66.9850 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. It rose 0.1 percent Friday. A measure of the currency’s one-month implied volatility, used to price options, surged 92 basis points this week to 5.89 percent.

The currency dropped to a two-week low on Thursday even as the government denied a media report that said authorities were planning to discuss a devaluation plan.

Indian sovereign bonds declined, with the yield on the notes maturing in September 2026 rising three basis points this week to 6.86 percent, according to prices from the central bank’s trading system. It slumped 13 basis points in the five days through Sept. 9.

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