Rupee fell, snapping a two- day gain, on concern a slower pace of expansion in industrial output may diminish the allure of the higher-yielding currency.
Factory production rose 11.5% in May from a year earlier, unexpectedly slowing from a 16.5% growth the previous month, a government report showed on Monday. The deceleration damped speculation the central bank will raise interest rates by more than a quarter-percentage point at its policy meeting on July 27, said Vikas Babu, a currency trader at state-owned Andhra Bank.
?The weaker industrial data has dented sentiment toward the rupee because of reduced interest-rate differential advantage,? Babu said.
The rupee dropped 0.2% to 46.7775 per dollar. It advanced 0.3% last week.
However, 10-year bonds rose for the first time in three days after industrial-production growth unexpectedly slowed in May.
Yields dropped from their highest level in two weeks after factory output climbed 11.5% in May from a year earlier, lower than 16.5% in April and the 16.2% median estimate in a Bloomberg survey. The central bank may refrain from raising benchmark interest rates by more than 25 basis points at its July review, said Srinivasa Raghavan, head of fixed-income at IDBI Gilts.
?An interest-rate increase once more this month is a given,? Raghavan said. ?The consolation is there may not be a far more aggressive action.?
The yield on the 7.80% note due May 2020 fell four basis points, or 0.04 percentage point, to 7.61%. The price rose 0.25, or 25 paise per Rs 100 face amount, to Rs 101.27.
The Reserve Bank of India?s policy meeting is scheduled on July 27. The central bank increased the reverse-repurchase rate to 4 percent from 3.75 percent, and the repurchase rate to 5.5 percent from 5.25 percent on July 2. Wholesale price inflation accelerated to 10.16 percent in May.