Nov. 25 (Bloomberg) -- India’s rupee completed a fourth weekly drop on mounting concern European leaders are struggling to contain their region’s sovereign-debt crisis.
The currency reached a record low on Nov. 22, prompting the central bank to take steps to boost the supply of foreign currency in the local market. Germany missed its sales target at a bund auction this week by 35 percent, and Portugal and Hungary were yesterday downgraded by credit-rating companies.
“The measures taken by the authorities are certainly positive but a lot depends on the global context,” said Tim Condon, Singapore-based head of Asian research at ING Groep NV. “If investors stay cautious about the developments in the euro zone, then the rupee will stay under selling pressure.”
The rupee declined 1.8 percent this week and 0.4 percent today to 52.2550 per dollar in Mumbai, according to data compiled by Bloomberg. It touched an all-time low of 52.7300 this week.
The RBI on Nov. 23 removed a $100 million limit on net foreign-currency sales via swaps. Companies borrowing abroad can now pay as much as 3.5 percentage points over the London Interbank Offered Rate for loans longer than three years and up to five years, raising the cap by 50 basis points, or 0.5 percentage point. For non-resident Indians, the spread over Libor was increased by between 25 basis points and 100 basis points for two different deposit plans.
German Chancellor Angela Merkel yesterday again ruled out joint euro-area borrowing and an expanded role for the European Central Bank in fighting the crisis. Italy prepares to sell bills today after the country’s two-year yield soared to a 14- year high yesterday. Portugal’s sovereign debt rating was cut to junk grade by Fitch Ratings yesterday, while Hungary also lost its investment grade at Moody’s Investors Service.
Three-month offshore forwards traded at 53.28 to the dollar, compared with 53.08 yesterday. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
--Editors: Andrew Janes, Anil Varma
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