India’s rupee was set for its first weekly drop in three after a report sparked concern that growth in Asia’s third-largest economy may slow amid the fastest price gains in the region.
Indian interest rates will remain elevated as long as surging inflation imperils economic growth, a deputy governor of the Reserve Bank of India said yesterday. A manufacturing gauge fell in December, while consumer prices climbed in November.
“Growth will remain sluggish though it has bottomed out,” said Ashtosh Raina, head of foreign-exchange trading at HDFC Bank Ltd. in Mumbai. “The rupee will stay rangebound” in the absence of fresh cues, he said.
The rupee fell 0.8 percent this week and 0.1 percent today to 62.33 per dollar as of 10:23 a.m. in Mumbai, according to prices from local banks compiled by Bloomberg. It touched 62.4350 earlier, the weakest level since Dec. 20. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose six basis points, or 0.06 percentage point, since Dec. 27 to 10.52 percent.
The rupee will strengthen if national elections due by May result in the formation of a stable coalition government, and as long as the external environment stays relatively benign, HDFC Bank’s Raina said.
A purchasing managers’ index released by HSBC Holdings Plc and Markit Economics was at 50.7 in December, lower than November’s 51.3. A figure above 50 indicates expansion. Gains in India’s consumer prices quickened to 11.24 percent in November compared with 3 percent in China and 2.9 percent in Malaysia, official data show.
“If you are having continuously high inflation, it will kill your growth,” RBI’s K.C. Chakrabarty told Bloomberg TV India yesterday. “If interest rates are high, that’s because inflation is high, and unless inflation is brought down, interest rates will not come down.”
Central bank Governor Raghuram Rajan last month surprised economists by holding the benchmark rate at 7.75 percent instead of adding to increases totaling 50 basis points since taking office in September.
Three-month offshore non-deliverable forwards declined 0.3 percent today to 63.68 per dollar, data compiled by Bloomberg show. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.