BLBG:India’s Rupee Declines on Speculation Importers Buying Dollars
India’s rupee fell, after gaining yesterday by the most in a week, on speculation importers boosted dollar purchases to benefit from a more favorable exchange rate.
The currency is also a “victim” of the nation’s record current-account deficit and increasing global confidence in the greenback after the Dow Jones Industrial Average rose to a record, according to Mumbai-based Federal Bank Ltd. India’s Finance Minister Palaniappan Chidambaram said Feb. 28 the shortfall in the broadest measure of trade is a “greater worry” than the budget gap.
“We saw importers buying dollars yesterday and this is likely to continue,” said Ravi Ranjit, chief manager at Federal Bank. “In the near term, the rupee is likely to face depreciation pressure as current-account concerns are still looming large.”
The currency declined 0.1 percent to 54.7675 per dollar as of 9:48 a.m. in Mumbai, according to data compiled by Bloomberg. It gained 0.4 percent yesterday, the most since Feb. 27. The Dollar Index, which tracks the greenback against those of six major trading partners, has rallied 3.4 percent this year and reached the highest level since August yesterday.
Currency Restrictions
One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, climbed one basis point, or 0.01 percentage point, to 9.67 percent. The measure has dropped nine basis points this week, after rising 74 basis points in the previous 10 days.
The Reserve Bank of India may re-impose restrictions on the size of currency positions if volatility increases significantly in coming weeks, Ranjit said. He predicts the rupee will benefit in the medium term as growth and global sentiment improves, and investors seek higher-yielding assets.
Three-month onshore rupee forwards traded unchanged from yesterday at 55.86 per dollar, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.79 versus 55.86. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net
To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net
