Rupee dips the most in 3 weeks

The rupee dropped the most in three weeks after concern that the global economic recovery was slowing prompted investors to favour safer bets than emerging-market assets.

Overseas funds sold $119.7 million more Indian shares than they bought last week, compared with net purchases of $613 million a week earlier, data from the stock market regulator showed. The MSCI Asia-Pacific Index of equities fell for a fourth day before a report tomorrow that economists surveyed by Bloomberg predict will show US retail sales dropped in May for the first time since June 2010.

“Global macro-economic developments suggest currencies like the rupee would remain under pressure,” said Roy Paul, deputy general manager in charge of currencies and fixed income at Federal Bank Ltd in Mumbai. “The rupee will weaken further in coming days and weeks.”

 

The rupee depreciated 0.3 per cent to 44.8575 per dollar at close in Mumbai, according to data compiled by Bloomberg. It may drop to 45.10 this week, Paul predicted.

Offshore forwards indicate the rupee would trade at 45.48 to the dollar in three months, compared with expectations for a rate of 45.36 on June 10. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars

RUPEE GAINS
India’s 10-year bond yield held near the lowest level in a month, on speculation a slowing economy will prompt the central bank to ease the pace of interest-rate increases.

The Reserve Bank of India will increase the repurchase rate by 25 basis points to 7.5 per cent on June 16, according to 15 of 17 economists in a Bloomberg survey. Governor Duvvuri Subbarao boosted the benchmark by half a percentage point on May 3 to rein in inflation, saying he was abandoning his “baby step” approach. Output at factories, utilities and mines rose 6.3 per cent in April from a year earlier, after an 8.8 per cent gain in March, the Central Statistical Office said on June 10.

“Bond yields are staying soft as investors are betting the central bank will go slow on hiking rates as the economy has started slowing,” said A Y Shedshale, a Mumbai-based deputy general manager at Bank of Maharashtra.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, was little changed at 7.90 percent.

CALL RATE DECLINES
THE call rate declined to finish at 7.25 per cent at the overnight call money market here on Monday due to lack of demand from borrowing banks. The call money rate finished lower at 7.25 per cent from last Friday's closing level of 7.40 per cent.