Re has biggest monthly slide since February

The rupee completed its worst month since February as Asian equity losses fueled concern global funds will pull money out of the region.

The currency, Asia’s worst performer this month, added to three weeks of losses on speculation local importers stepped up dollar purchases to settle month-end bills. The Bombay Stock Exchange’s Sensitive Index fell 1.6 per cent and the Shanghai Composite Index slumped 6.7 per cent, dragging the Asian benchmark down 0.8 per cent. The rupee also slid as traders increased bets for its weakness in the offshore non-deliverable forwards market.

“The rupee is a bit weaker because Asian equities are showing a negative trend, particularly the Shanghai index,” Sanjay Arya, treasurer at state-owned Bank of Maharashtra. “Month-end demand from importers too is adding to the pressure on the rupee,” he added.

The rupee lost 1.8 per cent this month to 48.8275 per dollar at the 5 pm close in Mumbai, according to data compiled by Bloomberg. The currency, might trade between 48.80 and 49.10 in the coming days, Arya said.

Daily average net purchases of local equities by overseas funds fell to $32.7 million this month till August 27 from $104.3 million in July, according to data provided by the Securities and Exchange Board of India.

Offshore contracts indicated that the rupee will trade at 48.92 to the dollar in a month, compared with expectations for a rate of 48.78 at the end of last week.

The rupee dropped 1.2 per cent against the yen to 0.5251 after the opposition Democratic Party of Japan, led by Yukio Hatoyama, ended 50 years of single-party rule as the Liberal Democratic Party lost almost two-thirds of its seats in the lower house of parliament.

7-year bonds fall the most since January
India’s seven-year bonds completed their worst month since January on concern a drought will hurt economic recovery and force the government to increase spending.

Yields on notes due 2016 climbed to a nine-month high at a government auction on August 28, signaling demand for securities fell. About 44 per cent of the nation’s 626 districts have been declared drought-hit, the farm ministry said on August 27.

“The outlook for bonds is negative as there are some concerns that the poor monsoon rains will prompt the government to sell more debt,” said Sanjay Arya, treasurer at state-owned Bank of Maharashtra in Mumbai.

The yield on the 7.02 per cent note due August 2021 climbed seven basis points to 7.40 per cent at the 5:30 pm close in Mumbai, according to the central bank’s trading system. The price fell 0.42 today, or 42 paise per Rs 100 face amount, to Rs 97.95. A basis point is 0.01 percentage point. The generic seven-year security added 47 basis points this month.

Finance Minister Pranab Mukherjee, who has projected a 16-year high budget shortfall of 6.8 per cent of gross domestic product in the year ending March 31, plans to borrow a record Rs 4.51 lakh crore ($92 billion) in the period.

Economic growth
A government report today showed economic growth accelerated for the first time since 2007, with GDP rising 6.1 per cent in the three months to June 30 from a year earlier. Economists forecast 6.2 per cent expansion. The driest monsoon season in seven years is threatening to reduce farm output and the government estimates the summer harvest may drop by a fifth.

India sold Rs 6,000 crore of the seven-year notes at a yield of 7.44 per cent on August 28, compared with 7.35 per cent predicted by investors in a Bloomberg News survey. Primary dealers, companies that underwrite government sales, bought Rs 431 crore of the unsold notes due 2016. They also bought unsold bonds maturing in 2021.

The government also auctioned 12-year debt at 7.99 per cent and 23-year securities at 8.20 per cent, compared with investors’ expectations of 7.94 per cent and 8.25 per cent, respectively.

The cost of five-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, decreased. The rate, a fixed payment made to receive floating rates, declined to 6.41 per cent from 6.44 per cent on August 28.