Rupee drops on dollar buying speculation

The rupee fell, erasing earlier gains, on speculation importers stepped up dollar purchases to benefit from the best exchange-rate in more than a week.

The rupee declined 0.2 per cent to 55.66 per dollar, according to data compiled by Bloomberg. It touched 55.38 earlier, the strongest level since August 24.

One-month implied volatility, a measure of exchange-rate swings used to price options, fell 30 basis points, or 0.30 percentage point, to 9.50 per cent, the lowest level since May 2.

The currency had strengthened as much as 0.3 per cent earlier as investors expect the European Central Bank (ECB) to announce details of a new bond-purchase plan this week, spurring fund flows into emerging markets. ECB President Mario Draghi said in Brussels he would be comfortable buying bonds with maturities of up to about three years, Jean-Paul Gauzes, a member of the European Parliament, said yesterday. Policy makers at the ECB are scheduled to meet September 6.

Bonds firm up on sustained demand
Government securities (G-sec) firmed up on sustained demand from banks and companies. The 8.33 per cent G-sec maturing in 2026 climbed to Rs 99.68 from Rs 99.65 yesterday, while its yield held steady 8.37 per cent.

The 8.15 per cent G-sec maturing in 2022 rose to Rs 99.57 from Rs 99.55, while its yield edged down to 8.21 per cent from 8.22 per cent. The 8.19 per cent G-sec maturing in 2020 also gained to Rs 99.3475 from Rs 99.31, while its yield held stable at 8.31 per cent.

Call rates end lower 
Call rates eased at the overnight call money market here on Tuesday due to lack of demand from borrowing banks. The rate finished lower at 7.95 per cent. It moved in a range of eight per cent and 7.50 per cent.

The Reserve Bank of India under the Liquidity Adjustment Facility purchased securities worth Rs 103.55 billion in seven bids at the one-day repo auction at a fixed rate of eight per cent.