Mumbai: The rupee on Tuesday fell the most in at least 15 months, tracking declines in Asian stocks, as weaker- than-expected manufacturing data from China spurred concern that Europe’s financial crisis could derail a nascent global economic recovery.
The 10-year bonds advanced, snapping a five-day decline. Bond yields fell to their lowest in a week after the central bank cut the amount of treasury bills it plans to sell in June by 60% to address any cash shortage as operators paid fees for third-generation phone licenses.
The rupee closed 1.7% lower at 47.155 against the dollar in Mumbai, the biggest decline since 17 February 2009. It slumped 4.3% in May, the worst performance among Asian currencies after South Korea’s won.
The currency retreated for the second consecutive day as the Bombay Stock Exchange’s benchmark Sensex index and the MSCI Asia Pacific index of regional shares fell 2.2% and 0.8%, respectively.
China’s Purchasing Managers’ Index fell to 53.9 in May from 55.7 the previous month, a government report on Tuesday showed, less than the median 54.5 estimate of 18 economists in a Bloomberg News survey. A similar index in India rose in April to the highest level since February 2008, a report showed on Tuesday.
The rupee slumped as a gauge that tracks the dollar’s strength rose to a 14-month high, signalling investors are seeking the perceived safety of the US currency. The Dollar index, which tracks that currency against those of six major US trading partners, rose as high as 87.473 on Tuesday, the highest level since March 2009, shows Bloomberg data.
“The rupee is tracking the weakness across emerging-market stocks because the economic outlook is not yet as reassuring as investors would like it to be,” said Krishnamurthy Harihar, Mumbai-based treasurer at the Indian unit of FirstRand Ltd, South Africa’s second-largest financial services company. “The rupee is likely to trade in a narrow range after Tuesday’s early decline.”
Offshore forwards indicated the Indian currency will trade at 47.65 to the dollar in three months, compared with expectations of 46.79 on Monday. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.
Credit rating agency Fitch Ratings on 28 May stripped Spain of its AAA grade, saying the nation’s debt burden may weigh on economic growth.
Greek Prime Minister George Papandreou has announced three rounds of deficit-reduction measures this year, spurring violent protests against cuts to wages and pensions.
An index of executive and consumer sentiment in the 16 euro nations fell to 98.4 from 100.6 in April, the European Commission said on Monday.
Foreigners have cut holdings of Indian shares by more than $2 billion from a record high of $79.4 billion reached on 30 April, shows data from capital markets regulator Securities and Exchange Board of India.
Funds based overseas in May sold an average $114 million of Indian shares a day more than they bought, following net daily purchases of $111 million the previous month.