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Rupee Advances a Third Day as Japan Easing Seen Spurring Inflows

India’s rupee strengthened for a third day, the longest run of gains in a month, on speculation unprecedented monetary easing by Japan will boost inflows into emerging-market assets. Bonds gained.

Overseas funds pumped $12.2 billion into Indian stocks and debt this year, exchange data show, as the central bank cut its benchmark rate by 50 basis points to 7.5 percent to spur growth in Asia’s third-largest economy. The Bank of Japan (8301) said last week it will double the monetary base by the end of 2014 by buying government securities.

“The news from Japan is fairly significant and there is optimism of increased fund inflows into India,” said Gaurav Kapur, a senior economist at Royal Bank of Scotland Group Plc in Mumbai. “Given weak growth conditions, there is a case for more rate cuts, which will also help attract foreign funds as that would push up Indian shares.”

The rupee strengthened 0.2 percent to 54.445 per dollar as of 10:24 a.m. in Mumbai, data compiled by Bloomberg show. One- month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, rose eight basis points, or 0.08 percentage point, to 7.85 percent.

Three-month onshore rupee forwards traded at 55.48 per dollar, compared with 55.64 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.40 versus 55.54. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

Industrial Output

India’s industrial output probably fell 1 percent in February, according to a Bloomberg survey before data due April 12. The Reserve Bank of India reduced its repurchase rate by 25 basis points each in January and March, and the next review is scheduled for May 3.

Government bonds advanced for the fifth day, sending the yield on benchmark notes due 2022 to a three-week low.

The yield on the 8.15 percent bonds due June 2022 fell two basis points to 7.89 percent in Mumbai, according to the central bank’s trading system.

To contact the reporter on this story: V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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