India Rupee Touches Three-Week High Before Budget Announcement

India’s rupee rose to the highest level in almost three weeks on speculation the government will rein in the widest fiscal deficit among major emerging markets.

Finance Minister Palaniappan Chidambaram, who presents the annual budget to parliament at 11 a.m. in New Delhi today, has vowed to pare the gap to 4.8 percent of gross domestic product in the year through March 2014 from 5.3 percent this year. Asia’s third-largest economy may grow between 6.1 percent to 6.7 percent next fiscal year, from the previous period’s estimated 5 percent, a government survey showed yesterday.

“Investors are expecting a budget that will be positive for the rupee,” said Ashtosh Raina, Mumbai-based head of foreign-exchange trading at HDFC Bank Ltd., India’s largest lender by market value. “There is a lot expected from the finance minister on the fiscal and growth front.”

The rupee advanced 0.4 percent to 53.6650 per dollar as of 9:38 a.m. in Mumbai, according to data compiled by Bloomberg. It touched 53.6050 earlier, the strongest level since Feb. 8. One- month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose three basis points, or 0.03 percentage point, to 9.53 percent.

Chidambaram may curb spending growth in the budget to boost scope for the central bank to reduce borrowing costs and avert a credit-rating downgrade, according to Goldman Sachs Group Inc. Lower bond yields and sovereign risk that accompanies better public finances will mitigate the impact of an austere budget on growth, the bank predicts.

Economic growth slowed to 4.9 percent in the quarter through December, according to the median of 43 estimates in a Bloomberg survey before data due 5 p.m. in New Delhi today. That would be the slowest pace since the three months through March 2009.

Three-month onshore rupee forwards traded at 54.74 per dollar, compared with 54.99 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 54.63 versus 54.86. 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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