Rupee weakened for the first time in four days after Moody?s Investors Service cut Greece?s credit rating to junk, reviving concern Europe?s debt crisis will undermine the global economic recovery.
The currency retreated from near this month?s high after Moody?s on Monday lowered Greece?s rating to Ba1 from A3, citing ?substantial? risks to economic growth from austerity measures linked to an emergency loan package the country secured. European nations including Germany, Italy and Spain have also taken steps to rein in budget deficits this quarter.
?Financial-market sentiment remains jittery as Europe?s debt troubles continue to pose a threat to the global economy,? said Roy Paul, deputy general manager at Federal Bank Ltd. ?That may affect capital flows to emerging markets and hence the rupee is looking weak.?
The rupee declined 0.2% to 46.5650 per dollar. That took its loss this quarter to 3.5%, a slide second only to South Korea?s won among Asia?s 10 most-used currencies. The rupee touched 46.41 on Tuesday, the strongest level since May 31.
However, 10-year bonds rose, snapping a four-day decline, after finance minister Pranab Mukherjee signaled policy makers aren?t considering a third increase in borrowing costs this year.
Yields fell from a six-week high after Mukherjee said on Monday that he isn?t in favor of ?altering? interest rates now. Wholesale-price inflation quickened to 10.16% in May, the most since October 2008. The Reserve Bank of India raised its benchmark rate by a quarter-percentage point in March and April each to the current level of 3.75%.
?Some bond investors are drawing comfort from the finance minister?s comments, which seem to play down the odds of an immediate rate increase,? said Roy Paul, deputy general manager at Federal Bank Ltd. The yield on the 7.80% note due May 2020 dropped three basis points to 7.66%. The price rose 0.22, or 22 paise per Rs 100 face amount, to 100.98.