Indian Rupee Volatility Drops to 8-Month Low on U.S. Optimism

Implied volatility in India’s rupee dropped to an eight-month low as U.S. housing data that beat analysts’ estimates brightened the outlook for a global economic recovery.

Sales of previously owned homes in the world’s largest economy, and India’s third-biggest trading partner, climbed 2.1 percent in October to an annual rate of 4.79 million, compared with 4.69 million the previous month, official data showed yesterday. While the rupee will be boosted by the Indian government’s efforts to improve public finances and attract investment, the currency’s gains will be limited by the shortfall in the nation’s current account, the broadest measure of trade, according to Morgan Stanley.

“We see prospects for a steadily appreciating rupee in coming months,” strategists at Morgan Stanley, including London-based Hans Redeker, wrote in a research note today. India’s current-account deficit “will serve as a drag on rupee appreciation, especially during periods of risk aversion,” the report said.

One-year implied volatility in the rupee, a measure of exchange-rate swings used to price options, fell 10 basis points, or 0.10 percentage point, to 10.55 percent. The rate is the lowest since March 26.

The rupee declined 0.1 percent in the spot market to 55.0950 per dollar in Mumbai, according to data compiled by Bloomberg. The currency, which earlier today rose as much as 0.5 percent, will strengthen to 53.3000 by the end of March, Morgan Stanley forecasts. It touched 55.1950 on Nov. 16, the weakest level since Sept. 13.

Greek Funds

The outlook for the U.S. economy also got a lift by optimism a deal can be reached with Congress to avoid spending cuts and tax increases that threaten to tip the country into a recession. House Speaker John Boehner and White House Press Secretary Jay Carney described a Nov. 16 meeting on the so- called fiscal cliff as “constructive.”

Euro-area finance ministers meet in Brussels today as they seek an agreement to help Greece with a 15 billion euro ($19 billion) shortfall in its finances.

Three-month onshore rupee forwards were at 55.95 per dollar, compared with 55.94 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were unchanged at 55.93. 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

To contact the editor responsible for this story: Amit Prakash at

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