India’s rupee completed its biggest weekly drop since June on speculation importers stepped up dollar purchases to meet payments.
The currency touched the lowest level in almost a month today amid concern faster inflation will reduce room for the central bank to lower borrowing costs to counter an economic slowdown. The pace of price increases quickened to 7.81 percent last month, the most this year, after the government raised the prices of subsidized fuels to rein in the budget deficit.
The rupee dropped “on the back of huge dollar demand from oil importers and defense firms,” analysts at Edelweiss Financial Advisors Ltd., including Mumbai-based Vinay Khattar, wrote in a research report today. “The Reserve Bank of India at its Oct. 30 meet is unlikely to slash the key rate as wholesale- price based inflation continues to remain at elevated levels, which is a major concern for the central bank.”
The rupee declined 1.9 percent this week to 53.8400 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 54.0050 today, the lowest level since Sept. 21.
One-month implied volatility, a measure of exchange-rate swings used to price options, rose 105 basis points, or 1.05 percentage point, to 11.35 percent. The rate has risen five basis points this week.
The RBI has kept the benchmark repurchase rate at 8 percent since a 50 basis point reduction in April.
Three-month onshore rupee forwards were at 54.73 per dollar, compared with 53.97 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 54.69 versus 53.86. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
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