Rupee Completes Best Week Since June on Optimism of Deficit Cuts

India’s rupee completed its biggest weekly gain since June amid optimism the nation’s new finance minister will announce measures to narrow the budget deficit and attract investment.

Palaniappan Chidambaram, in his first speech after taking office, said Aug. 6 that he will unveil steps to improve public finances and clarify tax laws. Disinvestment Secretary Mohammad Haleem Khan said Aug. 8 the government may start its asset-sale program next month to increase revenue. The currency was also strengthened by speculation that global central banks will take steps such as debt purchases to spur growth.

“A lot in India’s trajectory will depend on how the new finance minister will improve investors’ confidence,” Sergey Dergachev, who helps manage $8.5 billion in emerging-market funds at Union Investment Privatfonds in Frankfurt, said in an e-mail. “I see some scope for improvement.”

The rupee advanced 0.9 percent this week to 55.2850 per dollar in Mumbai, the biggest gain since the five days through June 29, according to data compiled by Bloomberg. It was little changed today. One-month implied volatility, a measure of exchange-rate swings used to price options, was unchanged at 10.20 percent. The gauge fell 110 basis points, or 1.10 percentage point, this week.

German Chancellor Angela Merkel backed the European Central Bank’s bond-buying plan, her spokesman Georg Streiter said Aug. 6. A government report yesterday showed India’s industrial production in June unexpectedly contracted 1.8 percent from a year earlier, adding to signs of faltering growth in Asia’s third-largest economy.

Three-month onshore rupee forwards traded at 56.37 per dollar, compared with 56.33 yesterday, and offshore non- deliverable contracts were unchanged at 56.25. 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