India Rupee Gains on Speculation Policy Changes Boosting Inflows

India’s rupee rose, erasing earlier losses, on speculation Prime Minister Manmohan Singh’s measures to boost foreign investment are attracting capital inflows.

The currency advanced for a third day as the BSE India Sensitive Index (SENSEX) of shares rose 0.3 percent. Global funds poured $3.6 billion into holdings of the nation’s equities last month through Sept. 27, the biggest increase since February, according to data from the securities regulator. The rupee’s gains will be limited by concerns about the outlook for exports amid signs global growth is weakening, according to Andhra Bank. (ANDB)

“We are seeing some inflows,” said Vikas Babu, a trader in Mumbai at the state-run bank. “Later in the day we may see importers buying dollars, which may cap the strengthening.”

The rupee advanced 0.4 percent to 52.6350 per dollar as of 1:24 p.m. in Mumbai, according to data compiled by Bloomberg. It rose 5.3 percent in the three months through September, its strongest quarterly gain since 2009 and the best performance among Asian currencies. One-month implied volatility, a measure of exchange-rate swings used to price options, was unchanged at 11.40 percent.

Chinese factory output contracted for a second month in September and big Japanese manufacturers became more pessimistic in the last quarter, according to official surveys published today. A government report showed India’s trade deficit widened to $15.6 billion in August from a $10.3 billion gap the previous month.

Current Account

The rupee had weakened earlier on concern a continued drop in exports will reverse a narrowing in India’s current-account deficit. The shortfall in the broadest measure of trade was $16.4 billion in the three months through June 30, compared with a $21.7 billion deficit the previous quarter, the central bank said Sept. 28. The median of 16 estimates in a Bloomberg News survey was for a $14.2 billion gap.

The narrowing in the current-account deficit was “primarily due to lower gold imports,” economists at Barclays Plc, including Mumbai-based Siddhartha Sanyal, wrote in a research report today. “Near-term movements in the rupee will continue to be influenced heavily by news and domestic policy and political developments.”

The rupee has rebounded 8.9 percent from a record low of 57.3275 per dollar touched June 22, after Prime Minister Singh last month cut fuel subsidies, opened up the retail and aviation industries to foreign investment, and reduced a tax on local companies’ overseas borrowing to 5 percent from 20 percent.

The yield on the 8.15 percent notes due June 2022 rose one basis point, or 0.01 percentage point, to 8.16 percent, according to the central bank’s trading system. The rate dropped three basis points, or 0.03 percentage point, last quarter.

Three-month onshore rupee forwards were at 53.59 a dollar, unchanged from Sept. 28, and offshore non-deliverable contracts were at 53.27 from 53.43. 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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