Rupee Near Three-Month High on Optimism of Growth-Support Policy

India’s rupee traded within 0.6 percent of a three-month high on speculation policy makers will take more steps to boost growth, which the government predicts will slow to a decade-low this fiscal year.

Gross domestic product will increase 5 percent in the year through March, below last year’s 6.2 percent and the least since 4 percent in 2002-2003, according to a Central Statistical Office statement released in New Delhi today. The median of 34 estimates in a Bloomberg News survey was 5.5 percent. The rupee dropped briefly by as much as 0.1 percent after the data was published. The central bank lowered borrowing costs last month and said slowing inflation gives some room for more easing.

“We are likely to see more rate cuts because the focus is shifting to growth,” said Ravi Ranjit, chief manager at Federal Bank Ltd. in Mumbai. “That will lead to more inflows into stocks in support of the currency, although we are seeing dollar demand from importers as well.”

The rupee was little changed at 53.1850 per dollar as of 12:09 p.m. in Mumbai, according to data compiled by Bloomberg. It touched 52.8900 yesterday, the strongest level since Oct. 17. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell five basis points, or 0.05 percentage point, to 9.48 percent.

Global funds bought a net $942 million of Indian shares on Feb. 5, the most since Feb. 23, 2012, exchange data show. European Central Bank President Mario Draghi heads a meeting of policy makers today in Frankfurt, while euro-area leaders gather for a summit in Brussels.

IMF View

India’s monetary authority should refrain from cutting interest rates until inflation is contained even as the nation faces a subdued economic recovery, according to the International Monetary Fund.

GDP will climb 5.4 percent in the 12 months through March 2013, and 6 percent the following fiscal year, the Washington- based lender said in a statement released yesterday. Inflation will ease to 7.2 percent by March 2014 from 7.8 percent in March this year, while the budget deficit may be 5.6 percent of GDP this fiscal year, above the government’s 5.3 percent goal, it added.

Three-month onshore rupee forwards traded at 54.22 per dollar, compared with 54.20 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 54.07 versus 54.05. 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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