LM:Rupee trades near record low as Fed risk slows inflows
Mumbai: India’s rupee traded 0.01% weaker than Monday’s record closing low as a slowdown in inflows leaves the currency vulnerable to a current-account deficit.
Global funds have cut rupee debt holdings by $5.4 billion since 22 May, when Federal Reserve chairman Ben S. Bernanke first signalled stimulus could be scaled back, and are set to end 12 months of net buying of Indian stocks, exchange data show. The shortfall in India’s current account widened to an unprecedented 5% of gross domestic product in the year through March, the government estimates before data due 28 June.
“A Fed stimulus cut poses a risk not just to India’s capital account, especially given its current-account gap, but is also a big negative for the rupee as flows dwindle further,” Religare Capital Markets Ltd analysts including Mumbai-based Tirthankar Patnaik wrote in a report on Tuesday. “We see the pain on the rupee continuing for now, with some short-term support provided by lower gold imports in June.”
The rupee fell 0.1% to 59.7350 per dollar as of 10:04 am in Mumbai, compared with Monday’s all-time closing low of 59.6750, according to data compiled by Bloomberg. It sank to an unprecedented 59.98 on 20 June and declined 5.4% this month, Asia’s worst performance.
One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell four basis points, or 0.04 percentage point, to 12.56%.
“The rupee could stay at the current levels for some time,” Chakravarthy Rangarajan, chairman of Prime Minister Manmohan Singh’s economic advisory council, said in a Bloomberg TV India interview on Tuesday. Global flows are still adequate to fund India’s needs, he added.
Gold demand
“The All India Gems and Jewellery Trade Federation, a group that represents about 300,000 gold jewellers, manufacturers, wholesalers, retailers and distributors, will send notices to members asking them to halt sales of coins and bars to retail investors until the current-account gap stabilizes,” chairman Haresh Soni said by phone from New Delhi on Monday. The curbs may reduce demand by about 20% in the world’s largest bullion consumer, he said.
Three-month onshore rupee forwards rose 0.1% from Monday to 60.69 per dollar, according to data compiled by Bloomberg. Offshore non-deliverable contracts gained 0.5% to 60.88. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
The Reserve Bank of India sold dollars in the onshore forwards market yesterday, according to two traders familiar with the matter who asked not to be named as the information isn’t public.
