Rupee drops, yields at 1-1/2-week high

The rupee weakened as concern that global economic growth is slowing reduced demand for emerging market assets.

Overseas funds sold $210 million more Indian shares than they bought this month through September 26, after a $2.1 -billion selloff in August, exchange data shows. India's current account deficit may rise to 2.7% of gross domestic product in the fiscal year ending March 31, according to an August estimate from the government's Economic Advisory Council.

The rupee fell 0.1% to 49.1300 a dollar as of 9:54 am in Mumbai, according to data compiled by Bloomberg. It has weakened 9% this year, the worst performer among Asia's 10 most-traded currencies.

Offshore forwards indicate the rupee will trade at 49.84 to the dollar in three months, from expectations of 49.78 yesterday. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

"In the current risk-off environment, the rupee is being particularly hit due to the country's current-account deficit," said Kenneth Kan, the Singapore-based head of emerging markets foreign-exchange trading at Credit Agricole CIB.

India's 10-year bond yield rose to the highest level in 1 and 1/2 weeks on speculation the central bank will keep monetary conditions tight after Governor Duvvuri Subbarao said inflation remains above the comfort level.