LM:Rupee fluctuates near record low on Fed stimulus concerns
Mumbai: The rupee swung between gains and losses, trading 0.2% off an all-time low, as concern US Federal reserve will pare stimulus countered optimism India’s government will allow more overseas investments.
The rupee rose 0.1% to 58.73 per dollar as of 12:18pm in Mumbai after falling till 58.89. It touched a record low of 58.9850 per dollar on 11 June and closed at 58.7725 on Tuesday.
A finance ministry panel has recommended increasing foreign investment limits in areas including defence, telecommunications and retail, said three government officials with knowledge of the matter. The rupee’s gains aren’t sustainable as investors are concerned the US Federal Reserve will reduce stimulus, and the currency may weaken past 59 per dollar as the Reserve Bank of India (RBI) is unlikely to defend it unless it threatens to drop beyond 60, according to IndusInd Bank Ltd.
“The foreign direct investment (FDI) news has provided some relief, but this will not stay for long as the Fed will have to signal some pullback in the quantitative easing, only the manner and timing is undecided,” said J. Moses Harding, executive vice president at IndusInd Bank in Mumbai. “This will not be good news for India.”
One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose eight basis points, or 0.08 percentage point, to 11.37%, data compiled by Bloomberg show.
Fed chairman Ben S. Bernanke will speak to reporters at the end of the monetary authority’s two-day meeting on Wednesday, almost a month after he said stimulus measures could be scaled back if the labour market shows sustainable improvement.
Three-month onshore rupee forwards fell 0.1% from Tuesday to 59.76 per dollar, according to data compiled by Bloomberg. Offshore non-deliverable contracts fell 0.3% to 59.95. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
