Indian Rupee Drops to One-Week Low on Importers’ Dollar Demand.

India’s rupee fell to the lowest level in a week on speculation importers boosted purchases of the dollar to pay month-end bills.

Currency-market traders have priced in a 25 basis point cut in the central bank’s repurchase rate at a policy review tomorrow, according to Mumbai-based Federal Bank Ltd. The Reserve Bank of India will lower borrowing costs to 7.75 percent from 8 percent, according to 25 of 29 economists surveyed by Bloomberg. Three predict a reduction to 7.5 percent and one sees no change.

“We are seeing month-end demand for dollars, largely from oil companies,” said Ravi Ranjit, chief manager at Federal Bank. “Any deviation from expectations at tomorrow’s policy review would lead to a sharp move in the currency, and investors will also be focused on the tone of the statement.”

The rupee declined 0.2 percent to 53.8050 per dollar as of 9:51 a.m. in Mumbai, according to data compiled by Bloomberg. It touched 53.9350 earlier, the weakest level since Jan. 21. Losses will probably be capped around 54.10 today, according to Ranjit.

One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, rose five basis points, or 0.05 percentage point, to 9.85 percent.

Three-month onshore rupee forwards traded at 54.80 per dollar, compared with 54.68 on Jan. 25, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 54.65 versus 54.59. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

Source : bloomberg.com