Indian Rupee Strengthens Most in a Week on Rate-Cut Speculation

India’s rupee rose the most in a week on speculation a slowing inflation measure that excludes food will allow the central bank to reduce interest rates next week, spurring buying of the nation’s stocks.

The Reserve Bank of India will lower its repurchase rate by 25 basis points to 7.50 percent at a March 19 review, according to 24 of 27 economists in a Bloomberg News survey. Three predict no change. Core wholesale prices advanced 3.8 percent in February after a 4.1 percent increase in January, according to a government report published yesterday.

“An RBI rate cut next week can lead to the rupee outperforming in Asia,” said Jonathan Cavenagh, a strategist at Westpac Banking Corp. in Singapore. “The currency is one of our favorites in the longer term.”

The rupee climbed 0.5 percent to 54.0875 per dollar as of 10:02 a.m. in Mumbai, taking the week’s gain to 0.4 percent, according to data compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose 10 basis points, or 0.10 percentage point, to 9.15 percent. The rate dropped three basis points this week.

The rupee’s gains will be limited by importers’ purchases of dollars, according to Federal Bank Ltd.

The S&P BSE Sensex Index (SENSEX) of shares rose for a second day as exchange data showed overseas funds bought a net $1.1 billion of the nation’s stocks this month through March 13.

Fuel Subsidies

While Barclays Plc says prices of manufactured goods excluding food increased less than 4 percent for the first time in almost three years, headline wholesale-price inflation accelerated to 6.84 percent last month from a year earlier after a 6.62 percent gain in January. The pickup is due to higher fuel costs as the government looks to reduce subsidies, the U.K. bank estimated in a report yesterday, adding that stripping this out would provide a number closer to 6.3 percent.

Three-month onshore rupee forwards traded at 55.15 per dollar, compared with 55.32 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.09 versus 55.33. 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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