Bloomberg News

India’s Rupee Rises Most in 2 Weeks on Global Stimulus Optimism

July 26, 2012

July 26 (Bloomberg) --India’s rupee rose the most in almost two weeks on speculation central banks in the world’s largest economies will take more steps to support growth, bolstering demand for higher-yielding assets.

The currency climbed to the highest level in almost a week after European Central Bank President Mario Draghi signaled officials are prepared to do whatever is needed to preserve the euro. Foreign investors added $10.2 billion to holdings of Indian shares this year, compared with outflows of $512 million in 2011, exchange data show. Asia’s third-largest economy expanded 5.3 percent in the first three months of the year, faster than Brazil’s 0.75 percent and Russia’s 4.9 percent.

“Capital inflows will be better this year than last as India is still one of the world’s relatively fast growing economies,” said Sujan Hajra, chief economist at Anand Rathi Financial Services Ltd. in Mumbai. “However, we are unlikely to see an avalanche of funds as capital preservation is more important for investors than generous returns, considering the external environment is quite bad.”

The rupee advanced 1.2 percent to 55.5150 per dollar in Mumbai, the biggest jump since July 13, according to data compiled by Bloomberg. It touched 55.5125 earlier, the strongest level since July 20. One-month implied volatility, a measure of exchange-rate swings used to price options, decreased 10 basis points, or 0.10 percentage point, to 11.70 percent.

Policy makers from the U.S. Federal Reserve, the European Central Bank and the Bank of England all meet next week, before the fifth anniversary of the financial crisis in August. Citigroup Inc. estimated, before Draghi’s comments, that there is a 90 percent chance Greece will exit the euro within 18 months, having previously given odds of 50 percent to 75 percent.

Rate Outlook

The rupee will be supported as the highest yields among major Asian economies will attract global funds, according to Anand Rathi. The government’s 10-year bonds yield 669 basis points more than comparable U.S. Treasuries, according to data compiled by Bloomberg.

The Reserve Bank of India will keep its benchmark repurchase rate unchanged at 8 percent at a review on July 31, according to 27 of 28 analysts in a Bloomberg News survey. One predicts a 25 basis point cut. Central bank Governor Duvvuri Subbarao said on July 16 that inflation, which measured 7.25 percent last month, is “way above” the monetary authority’s threshold of around 5 percent.

Three-month onshore rupee forwards traded at 56.75 per dollar, compared with 57.18 yesterday, and offshore non- deliverable contracts were at 56.74 from 57.21. Forwards are agreements to buy or sell assets at a set price and date. Non- deliverable contracts are settled in dollars.

To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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