Rupee Heads for Second Monthly Gain on Global Stimulus Optimism

India’s rupee headed for a second monthly gain on speculation global central banks will extend economic stimulus measures that have spurred capital flows into emerging markets.

The Federal Reserve begins a two-day policy meeting today after a government report last week showed the U.S. economy expanded less than analysts forecast. Most economists in a Bloomberg survey predict the European Central Bank will cut interest rates this week. The Reserve Bank of India will lower its repurchase rate to 7.25 percent from 7.5 percent at a May 3 review, according to 25 of 31 economists in a Bloomberg survey. Five see no change and one predicts a cut to 7 percent.

“The RBI’s policy should be growth-supportive and positive for the rupee,” said Ashtosh Raina, head of foreign-exchange trading at HDFC Bank Ltd. (HDFCB), India’s largest lender by market capitalization. “Global liquidity has a large role to play in the currency’s appreciation.”

The rupee advanced 0.2 percent in April this month to 54.16 per dollar as of 10:58 a.m. in Mumbai, according to data compiled by Bloomberg. It rose 0.1 percent and touched 54.1150 today, the strongest since April 25. One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, fell two basis points, or 0.02 percentage point, to 8.16 percent today. Indian markets will be shut tomorrow for a local holiday.

Global funds bought a net $11 billion of Indian stocks and $2.9 billion of rupee-denominated debt this year, exchange data show. Ten-year sovereign bonds in India offer a yield premium of 609 basis points over similar-maturity U.S. Treasuries.

Hindustan Unilever

The rupee strengthened today after Unilever Plc, the world’s second-largest consumer goods company, said it will spend up to 292.2 billion rupees ($5.4 billion) to boost its stake in its Indian unit. Unilever will pay 600 rupees a share in an open offer to raise its stake in Hindustan Unilever Ltd. (HUVR) to 75 percent from the current 52.48 percent, it said in a statement today.

The local foreign-exchange market would “easily” absorb fund inflows related to the stake purchase, HDFC’s Raina said.

Technical charts indicate the rupee’s gains will be capped at around 53.70, he said, as the nation runs a record current- account deficit. The shortfall in the broadest measure of trade was $32.6 billion in the quarter through December, according to official data.

Three-month onshore rupee forwards traded at 55.15 per dollar, compared with 55.21 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 54.91 versus 55.02. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

Bonds, Swaps

Government bonds were little changed. The yield on the 8.15 percent notes due June 2022 held at 7.76 percent in Mumbai, according to data compiled by Bloomberg. It reached 7.72 percent yesterday, the lowest level for a benchmark 10-year note since July 2010. The rate declined 20 basis points this month as official data on April 15 showed wholesale prices rose 5.96 percent in March, the least since November 2009.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, was unchanged today at 7.215 percent, according to data compiled by Bloomberg. The rate dropped 26 basis points in April.

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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