Rupee drops a second day on US credit-rating outlook

The rupee fell for a second day after Standard & Poor’s cut the long-term credit outlook for the US, reducing demand for emerging-market assets.

The world’s largest economy risks losing its AAA credit rating unless policy makers agree on a plan by 2013 to lower budget deficits and national debt, the rating company said on Monday after changing the outlook to negative from stable. India’s rupee dropped to the lowest level in almost two weeks and the MSCI Asia-Pacific Index of regional shares declined.

The rupee dropped 0.1 percent to 44.485 per dollar at close in Mumbai and reached 44.70, the lowest level since April 7, according to data compiled by Bloomberg. The currency will gain 2.6 per cent by the end of June to 43.50 because of the US fiscal situation, Wee said. Offshore forwards indicate the rupee will trade at 45.27 to the dollar in three months, compared with expectations of 45.19 on Monday. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

Bonds gain

Eleven-year bonds advanced for the first time in six days after the highest yields in two months lured buyers. The rate on the most-traded government debt has jumped 14 basis points this month on concern accelerating inflation will spur the central bank to increase borrowing costs.

“Investors are adding to their debt holdings as bonds have probably declined too much,” said A Y Shedshale, a fixed- income trader at Bank of Maharashtra in Mumbai. “But gains may be checked by rate-hike fears.” The yield on the 8.08 per cent note due August 2022 fell two basis points to 8.23 per cent as of 9.40 am in Mumbai, according to the central bank’s trading system. Monday’s closing level of 8.25 per cent was the highest since February 8. A basis point is 0.01 percentage point.

Call rates dip
Call rates declined further to close at 6.50 per cent at the overnight call money market here today on surfeit of liquidity in the banking system, while the government bond closed mixed on alternate bouts of buying and selling. The overnight call money rate finished lower at 6.50 per cent from yesterday’s closing level of 6.85 per cent. It moved in a range of 6.85 per cent and 6.25 per cent.

The 8.08 per cent government security maturing in 2022 firmed up to Rs 98.85 from 98.73 yesterday, while its yield softened to 8.24 per cent from 8.25 per cent.

The 8.13 per cent government security maturing in 2022 rose to Rs 99.35 from Rs 99.20, while its yield moved down to 8.22 per cent from 8.24 per cent.