Rupee declines on Europe debt woes, slowing growth

The rupee declined for a second day on speculation that Europe’s worsening debt crisis would sap demand for emerging-market assets and after data showed growth in India’s services industry slowed last month.

The Purchasing Managers’ Index fell to 53.8 in August from 58.2 in July, the slowest pace since June 2009, HSBC Holdings Plc and Markit Economics said yesterday. A reading above 50 indicates an expansion.

The rupee fell 0.3 per cent to 46.115 per dollar at the close in Mumbai, according to data compiled by Bloomberg. The currency touched 46.1550 earlier, the weakest level since August 26. Offshore forwards indicate the rupee would trade at 46.49 to the dollar in three months, compared with expectations of 46.37 yesterday. Forwards are agreements to buy or sell assets at a set price and date.

BONDS DROP
India’s 10-year bonds declined on speculation that the central bank would raise interest rates for the sixth time in 2011 at a policy review this month.

Yields rose after Reserve Bank of India Governor Duvvuri Subbarao said the amount of cash lenders needed to set aside was “high” and the central bank planned to reduce it gradually. Lenders have to invest 24 per cent of their deposits in government debt and other approved securities. A cut in the bond reserve requirement may reduce demand for fixed-income notes. The central bank will review its policy on September 16.The yield on the 7.8 per cent bonds due April 2021 rose one basis point, or 0.01 percentage point, to 8.30 percent at the close in Mumbai, according to the central bank’s trading system.

CALL RATE STEADY
The call rate ended stable on the overnight call money market here today. The overnight call money rate ended the day at its previous closing level of 8.00 per cent. It moved in a range of 8.05 per cent and 7.50 per cent.