Jan. 27 (Bloomberg) -- India’s rupee climbed to an 11-week high after the central bank eased monetary policy for the first time since 2009 to support economic growth, prompting investors to boost holdings of local stocks and bonds.
The currency completed a fourth weekly advance, the longest winning streak since April, and headed for the best month on record. Overseas funds added $1.56 billion to investments in Indian stocks this month through Jan. 24 and boosted ownership of debt to a record $29.5 billion, exchange data show. The Reserve Bank of India cut reserve requirements for lenders by half a percentage point to 5.5 percent on Jan. 24.
“The central bank’s decision is giving optimism that India’s fundamentals will improve and make the rupee an attractive investment,” said Roy Paul, deputy general manager of treasury at Federal Bank Ltd. in Mumbai. “The rupee should advance further in the short term.”
The currency appreciated 2.1 percent this week to 49.315 per dollar in Mumbai, according to data compiled by Bloomberg. It reached 49.2962 earlier, a level not seen since Nov. 8, and rose 1.6 percent today, the biggest gain since Dec. 16.
The rupee strengthened 7.6 percent this month in Asia’s best currency performance. It tumbled 16 percent in 2011, the region’s biggest exchange-rate loss, as Europe’s debt crisis fueled fund outflows from emerging markets.
“Recent official measures have tempered the rupee’s weakness,” analysts including Selena Ling and Emmanuel Ng at Oversea-Chinese Banking Corp. in Singapore wrote in a research note yesterday. “Bond and equity inflows into India remain strong although it remains to be seen” whether the rupee can sustain its gains beyond 50, they wrote.
The Reserve Bank, which raised its benchmark repurchase rate by a record 375 basis points in the past two years to cool inflation, left the measure unchanged at 8.5 percent this week.
“The growth-inflation balance of the monetary policy stance has now shifted to growth,” the bank said in its statement. The reserve-ratio cut “can be viewed as a reinforcement of the guidance that future rate actions will be towards lowering them,” it said.
Currency options signal further gains in the rupee. Implied volatility on three-month dollar-rupee options, a gauge of expected exchange-rate swings, fell to 10.3 percent today, the lowest level since Oct. 20, data compiled by Bloomberg show.
Offshore forwards indicate the rupee will trade at 50.35 to the dollar in three months, compared with expectations of 51.54 at the end of last week. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
--Editors: Anil Varma, Simon Harvey
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