India's rupee dropped the most in two weeks as an unprecedented levy on Cyprus's bank savings threatens to throw Europe back into crisis.
The rupee declined 0.3 per cent to 54.18 per dollar in Mumbai, the biggest drop since March 1, according to data. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose 25 basis points, or 0.25 percentage point, to 9.22 per cent.
Euro-area finance ministers reached an agreement on March 16 forcing depositors in Cypriot banks to share in the cost of a bailout. While Cyprus accounts for less than half a percent of the 17-nation euro economy, the concern is that the one-time tax could trigger runs on lenders across Europe and further destabilize the financial system. India's bonds declined before the central bank's interest-rate review tomorrow.
The Dollar Index, which tracks the greenback against six trading partners, climbed 0.5 percent.
Indian companies are "quite happy" with the rupee at its current level of 54 to 55 per dollar, finance minister P. Chidambaram said in a March 15 interview in New Delhi.
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