Bloomberg News

Rupee Steady on Speculation RBI Will Cut Rates to Support Growth

June 05, 2012

India’s rupee was steady amid speculation the central bank will lower borrowing costs this month for a second time in 2012 to support economic growth.

The Reserve Bank of India has more room to ease monetary policy after gains in gross domestic product slowed and oil prices dropped, even as inflation risks remain, Deputy Governor Subir Gokarn said in Mumbai yesterday. The RBI is due to review rates on June 18. The currency erased most of the day’s gains after a report showed Europe’s manufacturing and services industries shrank the most in almost three years.

“The deterioration in the rupee is both fundamental and sentiment-driven,” Deepali Bhargava, Mumbai-based chief economist for India at Espirito Santo Investment Bank, wrote in a report today. “Our call of another 75 basis points or 100 basis points rate cut by the RBI in an effort to address growth concerns, together with the recent correction in oil prices and gold demand, would likely be a positive.”

The rupee was little changed at 55.6450 per dollar in Mumbai, compared with 55.6650 yesterday, according to data compiled by Bloomberg. The currency’s one-month implied volatility, a measure of exchange-rate swings used to price options, fell 30 basis points, or 0.30 percentage point, to 12.9 percent.

Asia’s third-largest economy expanded 5.3 percent last quarter from a year earlier, the least since 2003, government data showed last week. Crude oil, the nation’s biggest import, has declined 22 percent this quarter in London to $98.02 a barrel. Local demand for gold, the second-largest import, will drop as much as 14 percent this year, the World Gold Council said in May.

Three-month onshore currency forwards traded at 56.58 a dollar, compared with 56.41 yesterday, and offshore non- deliverable contracts were at 56.73 from 56.63. 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: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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