India’s rupee plunged the most in nine months to a record low on concern slower economic growth will reduce capital inflows.
The currency declined after global funds sold $78 million more local shares than they bought this week through June 21, according to the Securities & Exchange Board of India. Asia’s third-largest economy may have to sacrifice growth to contain inflation, Reserve Bank of India Governor Duvvuri Subbarao said in Mumbai on June 19, a day after unexpectedly refraining from cutting interest rates at a policy review.
“Growth is a big concern, and the equity market is also not performing well,” said Naveen Raghuvanshi, a currency trader at Development Credit Bank Ltd. in Mumbai. “It’s uncharted territory for the rupee right now.”
The rupee depreciated 1.5 percent to 57.1550 per dollar in Mumbai, according to data compiled by Bloomberg. Earlier, the currency fell as much as 1.8 percent, the most since Sept. 22, to a record low of 57.3275.
The economy expanded 5.3 percent in the three months through March, the least in nine years, according to government data.
The Reserve Bank of India has asked oil refiners to take 50 percent of their dollar requirements from a single state-owned bank, Oil Secretary G.C. Chaturvedi told reporters in New Delhi today.
Rating Woes
Fitch Ratings this week joined Standard & Poor’s in signaling that the rating of Asia’s third-largest economy is at risk of demotion to so-called junk status.
India’s sovereign-credit outlook was lowered to negative from stable by Fitch, which cited the heightened risk of a deterioration in growth potential and limited progress on paring the nation’s budget deficit.
Price pressures and weak public finances put “even greater onus on effective government policies and reforms that would ensure India can navigate the turbulent global economic and financial environment and underpin confidence in the long-run growth potential of the Indian economy,” Art Woo , a Hong Kong- based director of sovereign ratings at Fitch, said in a statement on June 18.
Finance Minister Pranab Mukherjee wants to reduce the fiscal deficit to 5.1 percent of gross domestic product in the financial year that began April 1, from 5.76 percent last year.
“We do not yet see light at the end of the tunnel for the rupee,” analysts including Hong Kong-based Paul Mackel at at HSBC Holdings Plc wrote in a report today. “This time around domestic factors -- the uncertainty in the investment environment and the large fiscal deficit -- are primary concerns for us.”
The rupee’s one-month implied volatility, a measure of exchange-rate swings used to price options, rose 35 basis points, or 0.35 percentage point, today to 12.30 percent.
Three-month onshore currency forwards traded at 58.14 a dollar, compared with 57.36 yesterday, and offshore non- deliverable contracts were at 58.34 from 57.50. 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: V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
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