Ru­pee tum­bles as cur­rent-ac­count deficit widens to 5-year high

The Myanmar Times - - International Business -

THE In­dian ru­pee and bonds sunk af­ter the cur­rent-ac­count deficit widened to the most in five years, as an emerg­ing-mar­ket rout raises in­vestor scru­tiny of coun­tries with wors­en­ing bal­ance of pay­ments.

The ru­pee tum­bled as much as 1.2 per­cent Mon­day, the most in a month, to a record low of 72.5587, lead­ing de­clines among Asia’s emerg­ing-mar­ket cur­ren­cies. The bench­mark 10-year bond yield gained 11 ba­sis points to 8.14 per­cent, while stocks also de­clined.

Emerg­ing mar­kets have been roughed up in the past month as con­ta­gion fears start to spread fol­low­ing a melt­down in the cur­ren­cies of Ar­gentina and Tur­key. In­dia’s cur­rent-ac­count gap widened in the June quar­ter to $15.8 bil­lion, hurt by higher pay­ments for oil, data re­leased af­ter mar­ket hours on Fri­day show.

“Apart from the dol­lar strength that’s weigh­ing on the EM cur­ren­cies, con­cerns about fi­nanc­ing a wider cur­rent-ac­count deficit are also hurt­ing the ru­pee,” said Paresh Na­yar, the Mum­bai-based head of cur­rency and money mar­kets at FirstRand Ltd. At these lev­els, it re­mains to be seen if the RBI would sup­port the cur­rency in a big way, he said.

The cur­rent-ac­count short­fall rep­re­sented 2.4 per­cent of gross do­mes­tic prod­uct, more than Jan­uaryMarch’s 1.9 per­cent of GDP, ac­cord­ing to the Re­serve Bank of In­dia. The worst may be yet to come as the crude im­port bill for the world’s fastest-grow­ing oil user surged 76 per­cent in July from a year ear­lier to $10.2 bil­lion.

The deficit will prob­a­bly widen to 2.5 per­cent of the GDP for the fis­cal year amid ris­ing com­mod­ity prices and fund out­flows, said Dhanan­jay Sinha, an an­a­lyst at Emkay Global Fi­nan­cial Ser­vices. He ex­pects the ru­pee to weaken fur­ther to as low as 75 per dol­lar and sees the bench­mark yield reach­ing 8.40 per­cent.

Global funds sold $601 mil­lion of In­dia’s bonds this month, more than the com­bined $459 mil­lion that they bought in July and Au­gust. Con­cerns over an over­sup­ply of sov­er­eign bonds had con­trib­uted to the sell­down ear­lier this year, and there are lit­tle signs of re­lief.

The gov­ern­ment doesn’t see much room to cut its bor­row­ings for the fis­cal year, ac­cord­ing to peo­ple with knowl­edge of the mat­ter.

The right level for the ru­pee is 68-70 per dol­lar, with 72 be­ing” per­haps an outer limit or be­yond the rea­son­able outer limit for de­pre­ci­a­tion, Eco­nomic Af­fairs Sec­re­tary Sub­hash Garg told the Eco­nomic Times in an in­ter­view.” Those op­er­a­tors who are try­ing to take ad­van­tage of this con­ta­gion feel­ing in emerg­ing mar­kets may come to grief later, he said.

Photo: Agen­cies

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