Indian Rupee Drops to Record After Currency Measures; Bonds Fall India’s rupee fell to a record and headed for a weekly decline on concern recent steps to steady the currency will prompt foreigners to rethink investment plans amid speculation the U.S. will pare stimulus next month. The Reserve Bank of India on Aug. 14 announced measures to limit foreign-currency outflows from local companies and residents, and boosted efforts to lure investment. U.S. housing starts and consumer confidence data today may stoke speculation the Federal Reserve will trim its bond purchases next month, after jobless claims in the world’s largest economy fell to a six-year low. Indian government bonds fell. The rupee fell as much as 0.9 percent today from Aug. 14 to an unprecedented 62.005 per dollar and traded at 61.87 at 10:29 a.m. in Mumbai, according to prices from local banks compiled by Bloomberg. The currency weakened 1.8 percent this week. India’s financial markets were shut yesterday for the Independence Day holiday. The RBI steps “might be perceived as being regressive and tantamount to quasi-capital controls,” Radhika Rao, an economist at DBS Bank Ltd. in Singapore, wrote in a research report. “Despite being put forth as a temporary measure, uncertainty over more such action is likely to remain and possibly lead foreign investors to rethink plans to invest on fear of controls.” One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose seven basis points from Aug. 9, or 0.07 percentage point, and 11 basis points today to 12.59 percent, data compiled by Bloomberg show. Limiting Outflows The RBI cut the amount local companies can invest overseas without seeking approval to 100 percent of their net worth, from 400 percent, according to a statement on Aug. 14. Residents can remit $75,000 a year versus the previous limit of $200,000. The authority said banks accepting deposits after Aug. 24 from Indians living abroad need no longer keep 4 percent of the funds in cash and invest 23 percent in government-approved securities. India also boosted import duties on bullion on Aug. 13 and banned inward shipments of gold in the form of coins and medallions to reduce the trade deficit. In a briefing in New Delhi on Aug. 14, Economic Affairs Secretary Arvind Mayaram said imported gold must be stored in government-mandated warehouses. The government will seek to boost capital inflows with measures including allowing state-owned financial companies to issue “quasi-sovereign” bonds to finance long-term infrastructure investment, Finance Minister Palaniappan Chidambaram said Aug. 12. Bonds Drop Global funds have cut holdings of Indian debt by $10.1 billion since May 22 when Fed Chairman Ben S. Bernanke first signaled the U.S. may reduce bond purchases this year. The yield on the 7.16 percent government bonds due May 2023 rose 49 basis points this week to 8.62 percent, according to prices from the central bank’s trading system. That’s the highest rate on a 10-year bond since May 2012. India will auction 160 billion rupees of debt maturing in 2019, 2023, 2032 and 2035 today. Primary dealers underwrote 125.63 billion rupees of the notes. Wholesale prices rose 5.79 percent last month from a year earlier, compared with 4.86 percent in June, official data showed Aug. 14. A weaker currency stokes inflation as India imports about 80 percent of its oil. Three-month onshore rupee forwards fell 0.7 percent today to 63.40 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts declined 1.2 percent to 63.47. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
Posted on: Fri, 16 Aug 2013 05:31:28 +0000
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