Intervention brakes rupee near record as $2.8 billion flees

Bloomberg

The rupee’s slide toward a record low, amid $2.8 billion in outflows from Indian stocks and bonds, is prompting speculation the central bank will step up intervention to stem losses.
With a Federal Reserve interest-rate increase next month all but a certainty for bond traders, the rupee has slumped 2.6 percent in November, the most in 15 months. At 68.5650 per dollar, the currency is within 0.4 percent of the unprecedented 68.845 reached in 2013. The Reserve Bank of India has probably sold dollars via state-run banks on at least four occasions in less than a fortnight, according to information from traders who asked not to be named. “The RBI has been supplying dollars almost on a daily basis,” said Rohan Lasrado, Mumbai-based head of foreign-exchange trading at RBL Bank Ltd. “We are seeing outflows from the equity and debt markets, that is putting pressure on the rupee, along with the dollar strength. I strongly feel they will continue intervening.”
India’s central bank has maintained that it doesn’t target a specific rupee level and intervenes only to curb undue volatility in the currency market. The RBI’s increased presence comes as the government’s clampdown on unaccounted wealth floods the nation’s banking system with cash, while foreign investors withdraw money from local stocks and bonds. An e-mail sent to RBI spokeswoman Alpana Killawala didn’t get a response.
Overseas holdings of Indian government and corporate bonds have plunged by 77.2 billion rupees ($1.1 billion) in November, set for the biggest decline since February, National Securities Depository Ltd. data compiled by Bloomberg show. Global funds have withdrawn a net $1.7 billion from local shares this month.
The rupee’s previous record low in August 2013 came after the Fed’s signal to end its unprecedented bond purchases spurred an exodus from emerging markets like India. Its slide this year has tripped fewer alarms as Asia’s third-largest economy has since been overhauled, with policy makers succeeding in narrowing the current-account deficit, slowing inflation and building a war chest of foreign-exchange reserves. The Indian currency’s 2.6 percent November decline compares with a 5.6 percent loss for Malaysia’s ringgit, the worst in Asia, and a 3.2 percent drop in Indonesia’s rupiah. Taiwan’s dollar has fallen 1 percent, the least in the region, while China’s yuan has weakened 1.8 percent. Odds for a rate increase at the U.S. central bank’s Dec. 13-14 meeting have reached 100 percent, according to Bloomberg calculations based on futures.