India’s rupee traded near a record low on concern a deepening global economic slump will damp demand for riskier local assets.
The currency weakened for an eighth day, the longest losing streak since October, as latest data showed global funds increased sales of Indian shares. Australia’s economy unexpectedly shrank last quarter for the first time in eight years, a report showed today, while India’s expanded at the slowest pace in five years. The Bombay Stock Exchange Sensitive Index has slid almost 13 percent this year, compared with a 17 percent gain in the Shanghai Composite Index.
“India’s rupee is seeing historical lows and I don’t think there will be bright news going forward,” Tetsuo Yoshikoshi, a senior economist at Sumitomo Mitsui Banking Corp. in Singapore, said. “Stocks have been declining and the data has been very weak compared to China. There’s no real good story there.”
The currency traded at 52.005 per dollar as of 10:19 a.m. in Mumbai, after touching a record-low 52.185 yesterday, according to data compiled by Bloomberg. It may fall to 52.50 by the end of this month, Yoshikoshi said.
The rupee was the third-worst performer in the past 12 months among the 10 most-traded Asian currencies, with a 22.4 percent loss. South Korea’s won and Indonesia’s rupiah have declined more.
‘Bearish Signals’
Sales of Indian equities by foreigners exceeded purchases by $118.5 million on March 2, the most in almost two weeks, according to data provided by the Securities and Exchange Board of India. Net sales this year reached $1.8 billion, adding to the record $13.3 billion in 2008.
“Options are giving bearish signals for the rupee,” Thio Chin Loo, Singapore-based senior currency strategist at BNP Paribas SA, said in an interview. “Foreigners are exiting Indian shares and the vicious cycle of stock selling and rupee weakness will continue.”
Implied volatility on one-month dollar-rupee options climbed to 17 percent this week, the most since Jan. 12, Bloomberg data show. It was at 16.86 percent today. Traders quote implied volatility, a gauge of expected swings in exchange rates, as part of pricing options.
The dollar’s so-called risk-reversal rate against the rupee, the premium on call options over put options, reached the highest since January last week, showing demand increased for contracts that allow purchases of the U.S. currency. A call option grants the holder the right to buy an asset. The one- month 25-delta risk-reversal rate reached 3.5 percent on Feb. 27, the most since Jan. 14. It was at 2.25 percent today.
Monitoring Closely
Offshore contracts indicate traders bet the rupee will trade at 52.33 to the dollar in a month, compared with expectations for a rate of 52.38 yesterday. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.
Declines in the rupee were limited by speculation the central bank will sell foreign currency from its reserves to limit volatility. Central banks intervene by arranging sales or purchases of foreign currency to influence exchange rates.
The Reserve Bank of India’s policy of intervening in the currency market to curb volatility without setting a target level or band for the rupee remains unchanged, Deputy Governor Shyamala Gopinath said yesterday.
“We are monitoring all market developments closely and we will take appropriate action as and when necessary,” she told reporters in Mumbai.
A central bank report showed Feb. 27 that reserves slid 21 percent from an all-time high of $316.2 billion reached in May 2008, suggesting the monetary authority increased dollar sales. The bank has been intervening to smooth rupee movements, acting Finance Minister Pranab Mukherjee said last week.
Source : Bloomberg.com