India’s rupee headed for a third weekly drop on concern U.S. policy makers will slow debt purchases that boosted the supply of dollars and contributed to inflows to emerging markets.
The currency fell to a one-month low yesterday after minutes from the Federal Reserve’s last meeting issued Feb. 20 showed several officials prefer varying the pace of buying bonds. Investors should consider purchasing the rupee as India’s economic fundamentals are improving, according to Brown Brothers Harriman & Co. Inflation slowed to a three-year low of 6.62 percent in January and the Reserve Bank of India cut interest rates last month for the first time since April.
“Markets overreacted to the minutes and should reassess that view in the coming days,” analysts at BBH, including New York-based Marc Chandler, wrote in an e-mail to clients today. “The RBI is easing, inflation is starting to fall, growth should start to pick up and so the rupee should strengthen back towards 53.”
The currency declined 0.4 percent this week to 54.4425 per dollar as of 9:32 a.m. in Mumbai, according to data compiled by Bloomberg. It rose 0.1 percent today after falling to 54.6300 yesterday, the weakest level since Jan. 17. The currency is unlikely to drop past 55 a dollar, according to BBH. The Dollar Index, which tracks the greenback against six major trading partners, retreated from a five-month high touched yesterday.
The rupee’s one-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose 39 basis points, or 0.39 percentage point, to 9.44 percent this week. The rate climbed four basis points today.
Three-month onshore rupee forwards traded at 55.55 per dollar, compared with 55.60 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.40 versus 55.52. 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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