India’s Rupee Advances as Singh’s Policy Push Boosts Inflows

India’s rupee rose toward the highest level since May after Prime Minister Manmohan Singh’s steps to curb the budget deficit and attract investment lured foreigners to the nation’s assets.

Overseas investors pumped $2.7 billion into local stocks since Sept. 13, the day the government announced it was cutting fuel subsidies, exchange data show. The BSE India Sensitive Index (SENSEX) of shares gained 3.7 percent in the period and foreign funds bought $196 million of rupee-denominated debt. Indian policy makers are unlikely to curb the currency’s gains, according to Brown Brothers Harriman & Co.

The rupee “offers greater prospects for capital appreciation should the rally in equity markets continue,” analysts at Brown Brothers Harriman, including New York-based chief currency strategist Marc Chandler, wrote in a report to clients today. In Asia, the currency is probably one of the “best prospects for carry trades,” they wrote.

The rupee advanced 0.3 percent to 53.3600 per dollar as of 10.17 a.m. in Mumbai, according to data compiled by Bloomberg. It touched 53.0550 on Sept. 24, the strongest level since May 10, and has gained 4.1 percent in September. One-month implied volatility, a measure of exchange-rate swings used to price options, fell 14 basis points, or 0.14 percentage point, to 11.16 percent.

Best Performer

The rupee is Asia’s best-performing currency this quarter, strengthening 4.3 percent against the dollar. It lost 8.6 percent in the three months through June.

India’s finance ministry reduced a tax on local companies’ overseas borrowing to 5 percent from 20 percent on Sept. 21. In a rare prime-time speech to the nation the same day, Prime Minister Singh vowed to introduce more policy changes after cutting fuel subsidies and allowing foreign investment in industries including retail and aviation.

Three-month onshore rupee forwards were at 54.31 per dollar, compared with 54.46 yesterday, and offshore non-deliverable contracts were at 53.97 from 54.14. 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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