Mumbai: The rupee fell the most in six weeks as some importers took advantage of the currency’s rally to a two-and-a- half month high to buy cheaper dollars.
The rupee weakened a second day as importers probably stepped up dollar purchases after the local currency gained 2.7% last week, the most since the five-day period ended 7 November. A drop in Asian stocks and currencies on Monday added to speculation overseas funds are scaling back purchases of regional assets, trimming the rupee’s gains.
“Some sizeable import payment outflows, said to be defence-related, have brought the rupee down today,” said Sudarshan Bhatt, head of currency trading at state-owned Corporation Bank in Mumbai.
The local currency declined 1.6% to 48.02 per dollar at close, according to Bloomberg data. The currency may fall to 48.20 in the coming days, Bhatt said.
The rupee touched 46.86 in intraday trading on 19 December, the highest since 3 October, rebounding more than 8% from a record low of 50.615 reached on 2 December. The currency’s 17.8% loss this year is its biggest since 1991.
India’s import payments rose an average 37.2% this year, compared to 24.5% in 2007, government data show.
The benchmark Bombay Stock Exchange’s Sensex index lost 1.7% on Monday, snapping a two-day advance. The MSCI Asia Pacific Index fell 0.6%.
Overseas funds sold more Indian shares than they bought on 17 and 18 December, according to the latest data released by markets regulator Securities and Exchange Board of India.
The rupee pared a three-week rise as the Japanese yen weakened against the euro and the dollar after the finance ministry in Tokyo said shipments from the country fell 26.7% in November from a year earlier. The rupee opened weaker tracking the broad trend across currency markets, particularly the yen’s losses, said Paresh Nayar, chief of currency and fixed-income trading at Development Credit Bank Ltd in Mumbai.
Offshore non-deliverable forward contracts showed traders increased bets for how far the rupee will fall in a month. The contracts indicate the rupee will trade at 48.35 a dollar a month from now, compared with expectations for a decline to 47.65 on 19 December. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Rupee forwards traded overseas are non-deliverable, meaning they are settled in dollars rather than the local currency.
Meanwhile, 10-year bonds fell the most in two months, paring the biggest weekly advance in at least a decade, on speculation yields near the lowest since 2004 will damp demand. Banks and securities companies may have scaled back purchases after yields dropped 66 basis points in the five days ended 19 December. Slowing inflation and speculation the Reserve Bank of India (RBI) will further cut borrowing costs fuelled a six-week rally. One basis point is a hundredth of a percentage point.
The yield on the 8.24% note due April 2018 climbed 15 basis points to 5.71% at the 5.30 pm close in Mumbai, according to RBI’s trading system. The price fell 1.22 per Rs100 face amount to 118.08. Ten-year yields have dropped 3.84 percentage points from a seven-year high of 9.55% reached in July, heading for the first annual decline since 2003.