Rupee Trades Near 11-Month Low

India’s rupee traded within 0.5 percent of an 11-month low on concern the Federal Reserve will scale back asset purchases that have spurred fund flows into emerging markets.

India’s economy expanded less than 5 percent for a second quarter, data showed on May 31, a day after central bank Governor Duvvuri Subbarao said the nation’s balance of payments is under stress.

The rupee was little changed at 56.5050 per dollar on 3 June. It touched 56.76 on May 31, the weakest level since June 28, 2012. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell one basis point, or 0.01 percentage point, to 9.22 percent.

International investors poured almost $20 billion into India’s stocks and bonds this year, exchange data show.

Central Bank

The shortfall in India’s current account, the broadest measure of trade, probably widened to 5 percent of gross domestic product in the year ended March 31, Subbarao said on May 30. India’s gross domestic product increased 4.8 percent in the three months ended March 31 from a year earlier.

The Reserve Bank of India may have sold dollars around the 56.75 per dollar level last week to curb the rupee’s drop, J. Moses Harding, executive vice president at IndusInd Bank Ltd. in Mumbai, said on May 31. That should encourage exporters to convert overseas earnings, he said.

Three-month onshore rupee forwards traded at 57.41 per dollar, compared with 57.42 on May 31. Offshore non-deliverable contracts were at 57.44 versus 57.60 a month ago. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.