Re falls for first time in 5 days

The rupee declined for the first time in five days on concern an advance in crude oil prices will increase import costs. The rupee declined 0.2 per cent to 47.025 a dollar at the close, according to data compiled by Bloomberg. It touched 46.89 yesterday, the strongest intraday level since December 19.

The currency dropped on speculation refiners will stock up on dollars to pay for shipments after the commodity jumped 30 per cent in May, the biggest monthly gain in a decade. Higher costs may widen the nation’s trade deficit as India depends on imports to meet more than 70 per cent of its annual energy needs.

“The rupee is under pressure to weaken as the market covers short-dollar positions in anticipation of oil-related demand” for foreign exchange, said Sudarshan Bhatt, chief currency trader at state-owned Corporation Bank in Mumbai. Short positions are bets a currency will depreciate.

Offshore contracts indicate bets the rupee will trade at 47.18 to the dollar in a month, compared with expectations for a rate of 47.01 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.

Crude oil in New York advanced to $68.58 a barrel yesterday, the highest settlement since November 4. Prices are up 52 per cent this year. India’s trade deficit increased 24 per cent to $5 billion in April from the previous month, a government report showed yesterday.

Yields dip
Benchmark yields slipped to the lowest level in almost a week after Finance Secretary Ashok Chawla on Tuesday said total borrowing in the 12 months through March will remain within target even though some debt sales are advanced to the first half.

The yield on the 6.05 per cent note due February 2019 fell one basis point to 6.65 per cent at the close in Mumbai, according to the central bank’s trading system. The price increased 0.06, or 6 paise per 100-rupee face amount, to 95.78. A basis point is 0.01 percentage point.

The government yesterday said it will offer more than planned for a third straight time at an auction scheduled on June 5, fueling speculation India will exceed its budget. Ten-year bonds gained for a third day as comments by a finance ministry official eased concern the government’s fiscal-year borrowing will rise.

Benchmark yields climbed to near a seven-week high earlier on Tuesday after the finance ministry yesterday said it will sell Rs 15,000 crore of bonds on June 5, compared with an original plan for Rs 12,000 crore.

“The government said it’s only frontloading auctions and that has eased some of the concerns about an overshooting of overall debt supply,” said Srinivasa Raghavan, head of treasury at Mumbai-based IDBI Gilts, a primary dealer that underwrites government sales. “The increase this week is as expected.”

The sale includes Rs 8,000 crore of a new six-year note, Rs 5,000 crore of the 8.20 per cent security maturing in 2022 and Rs 2,000 crore of the 7.5 per cent debt due 2034. The government increased the auction amounts on May 22 and May 28, citing “a review of the emerging requirements, market conditions and other relevant factors.”

India will rely on funds raised from the market to fund an economic recovery, Finance Minister Pranab Mukherjee said last week. The government plans to sell a record Rs 2.41 lakh crore in the six months through September 30 and a total Rs 3.62 lakh crore for the year, according to its borrowing calendar.

The cost of five-year swaps, or derivative contracts used to guard against rate fluctuations, declined. The rate, a fixed payment made to receive floating rates, slid to 6.32 per cent from 6.38 per cent yesterday.