India’s Rupee Rises to Highest Level in March Before RBI Review

India’s rupee rose to the highest level this month on speculation the central bank will lower borrowing costs today to boost economic growth and as concerns about Europe’s debt crisis receded.

The Reserve Bank of India will cut its benchmark repurchase rate to 7.50 percent from 7.75 percent when it announces its decision at 11 a.m. in Mumbai, according to 30 of 35 economists in a Bloomberg News survey. Five predict no change. Euro-area finance ministers signaled flexibility on the terms of Cyprus’s rescue, suggesting that less-wealthy depositors could be exempted from taxes used to fund a bailout.

“A 25 basis point cut has been priced in,” said Ravi Ranjit, chief manager at Federal Bank Ltd. (FB) in Mumbai. “While anything more is unlikely, anything less will be a huge disappointment for the market. The tone will also be looked at very closely considering the overall inflation-growth dynamic.”

The rupee advanced 0.4 percent to 53.9550 per dollar as of 9:50 a.m. in Mumbai, according to data compiled by Bloomberg. It touched 53.8950 earlier, the strongest level since Feb. 28. One- month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell nine basis points, or 0.09 percentage point, to 9.13 percent.

Inflation, Growth

Gross domestic product in Asia’s third-largest economy rose 4.5 percent in the last quarter of 2012, the slowest since 2009, and the government forecasts an annual growth rate of around 5 percent, the lowest in a decade. While wholesale-price inflation unexpectedly accelerated to 6.84 percent in February, a measure that excludes food prices climbed only 3.8 percent. Consumer prices rose 10.91 percent from 10.79 percent.

European policy makers on March 16 imposed an unprecedented levy on Cypriot bank savings, triggering concern that this could cause runs on lenders across Europe and further destabilize the financial system. The Federal Reserve starts a two-day policy meeting today.

Three-month onshore rupee forwards traded at 55.02 per dollar, compared with 55.26 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 54.88 versus 55.18. 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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