Bloomberg News

Rupee Set for Second Monthly Gain on Europe Stimulus Speculation

July 31, 2012

India’s rupee headed for a second monthly gain after European policy makers signaled they will take steps to contain the region’s debt crisis, spurring demand for emerging-market assets.

The Federal Reserve and the European Central Bank meet this week and will probably keep borrowing costs at 0.25 percent and 0.75 percent, respectively, according to Bloomberg surveys. The Reserve Bank of India may hold its benchmark repurchase rate at 8 percent today, 31 of 34 analysts predict. Three expect a 25 basis point cut.

The rupee will track “a surge in high-yielding assets in the next few sessions,” analysts at Edelweiss Financial Advisors Ltd., including Mumbai-based Vinay Khattar, wrote in a research report today. A rate reduction in India may spur a rally in stocks, which will support the rupee, the note said.

India’s currency advanced 0.2 percent this month to 55.5450 per dollar as of 9:47 a.m. in Mumbai, according to data compiled by Bloomberg. It rose 0.1 percent today. One-month implied volatility, a measure of exchange-rate swings used to price options, was unchanged at 11.20 percent today, having fallen 45 basis points, or 0.45 percentage point, this month.

India’s inflation is a major challenge for monetary policy even as economic expansion remains weak, the central bank said yesterday. Foreign funds raised holdings of rupee-denominated debt by $587 million this month through July 27, exchange data show, as benchmark 10-year notes yield 665 basis points more than similar-maturity U.S. Treasuries.

Three-month onshore rupee forwards traded at 56.51 per dollar, compared with 56.41 yesterday, and offshore non- deliverable contracts were at 56.44 from 56.36. 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: James Regan at jregan19@bloomberg.net


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