Rupee drops on inflation concern

The rupee dropped for the second time this week on speculation accelerating inflation would erode economic growth and damp overseas investors’ demand for the nation’s assets.

“Risk has increased for the rupee” to weaken, J Moses Harding, a Mumbai-based executive vice-president at IndusInd Bank Ltd, wrote in a research note on Wednesday. “One of the reasons is the buildup of inflationary pressures that would hamper growth and trigger exit of foreign investments.”

The currency retreated 0.1 per cent to 44.775 per dollar at close in Mumbai, according to data compiled by Bloomberg. That bolstered its loss this quarter to 0.4 per cent, the worst performance after the Thai baht and the Philippine peso among Asia’s 10 most-traded currencies.

The rupee rose earlier on speculation that the central bank will boost interest rates tomorrow to cool inflation, increasing the nation’s yield advantage over the US, Europe and Japan.

BONDS DROP
Government bonds dropped further due to persistent selling pressure from banks and companies

The 7.80 per cent government security maturing in 2021 dropped to Rs 96.04 from 96.48 yesterday, while its yield moved up to 8.38 per cent from 8.33 per cent. The 8.13 per cent government security maturing in 2022 slipped to Rs 97.45 from 97.76, while its yield rose to 8.48 per cent from 8.44 per cent. The 7.83 per cent government security maturing in 2018 declined to Rs 96.95 from Rs 97.20, while its yield firmed up to 8.42 per cent from 8.37 per cent.

CALL RATE FIRMS UP
The call rate closed higher on Wednesday at 7.40 per cent at the overnight call money market, owing to renewed demand from borrowing banks. The call money rate had closed at 7.30 per cent yesterday. It moved in a range of 7.45 per cent and 7.25 per cent.