Rupee Strengthens on Optimism Fund Inflows Will Improve as Inflation Slows

India’s rupee strengthened on speculation international investors will quicken purchases of the nation’s assets as inflation slows.

Foreign funds boosted holdings of Indian debt by $3.2 billion this month to $29.3 billion as of Jan. 19, exchange data show, and investments in stocks rose by $1.2 billion. Inflation (INFINFY) slowed to 7.47 percent in December from 9.11 percent the previous month, government data show. The rupee’s gains may be limited as importers buy dollars to meet month-end payments, according to Alpari Financial Services.

“We could see a tussle between dollar demand from the oil importers and foreign investors buying in the debt market, resulting in volatile movement in the rupee,” Pramit Brahmbhatt, chief executive officer at Alpari’s Indian unit in Mumbai, wrote in an e-mail today.

The rupee advanced 0.5 percent to 50.0825 per dollar in Mumbai, according to data compiled by Bloomberg. It strengthened 2.4 percent last week, the most since the five-day period ended October 28.

The Reserve Bank of India will keep its benchmark rate unchanged at 8.50 percent at a policy review tomorrow, according to all 21 economists in a Bloomberg News survey.

“Good” inflows into Indian stocks and debt and a “high” forward premium are positive for the rupee, according to J. Moses Harding, executive vice president at IndusInd Bank Ltd. in Mumbai. The three-month forward premium was 8.30 percent today, according to data compiled by Bloomberg.

Harding recommends selling the greenback for April delivery and buying January dollars, as a longer-term view is unclear. “The RBI, which is still seen selling dollars in the foreign- exchange market, could turn a buyer of dollars or the external environment may deteriorate,” Harding said.

Three-month onshore forwards traded at 51.12 a dollar compared with 51.48 on Jan. 20, according to data compiled by Bloomberg. Offshore forwards traded at 51.19, compared with 51.54. 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

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.