Rupee Tumbles Most Since June as Emerging-Market Selloff Deepens

  • Volatility in Indian currency surged 165 basis points Friday
  • Sovereign bonds decline, ending four-day winning streak

The Case for Staying Bullish on Emerging Markets

The rupee dropped the most in more than four months as speculation the Federal Reserve will become more aggressive in raising interest rates under a Donald Trump-led administration triggered concern over outflows from Indian assets.

The currency declined 0.9 percent, the most since June 24, to 67.2450 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. It touched 67.2550 intraday, the weakest level since July 27. State-run banks sold dollars on behalf of the Reserve Bank of India, two Mumbai-based traders said earlier in the day, asking not to be identified. A gauge of expected rupee swings surged 165 basis points to 6.19 percent, the highest since June.

“Emerging markets are envisaging higher U.S. interest rates and investors are responding to this sentiment,” Bhupesh Bameta, Mumbai-based head of research for currencies and rates at Edelweiss Financial Services Ltd. “The RBI has said that while it doesn’t target a level, it will intervene to curb volatility and today seems to be just the day.”

An index of emerging-market currencies headed for the worst three-day rout since 2011. Sentiment toward developing-nation assets also soured on bets Trump will enforce protectionist trade policies. The rupee’s losses on Friday took its decline this week to 0.8 percent, the biggest since June.

Read: Dollar’s Trump-Inspired Surge Sets Off Intervention Across Asia

Investors have flagged some concern about how a Trump victory will impact U.S.-India relations, especially on the issues of trade and immigration. While his policies are “the great unknown,” his stance on both these matters in general “has been clearly hawkish,” HDFC Bank Ltd. economists led by Abheek Barua wrote in a Nov. 4 report. Foreign funds sold a net $324 million of Indian shares in the week through Thursday.

An e-mail sent to RBI spokeswoman Alpana Killawala didn’t get a response.

The yield on government notes due Sept. 2026 jumped seven basis points to 6.72 percent in Mumbai, according to prices from the RBI’s trading system. Its close Thursday was the lowest for benchmark 10-year debt since June 2009.

Read: Modi Shock Ban Boosts Bonds as Biggest Fund Eyes Rate Cuts

Bonds advanced for the week as Prime Minister Narendra Modi’s clampdown on unaccounted wealth spurred expectations of an improvement in banking-system liquidity and more interest-rate cuts by the central bank. The yield on the 2026 securities fell 12 basis points from Nov. 4.

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