India Rupee Gains as U.S. Employment Data Boosts Inflow Optimism

India’s rupee rose for the first time in three days on speculation U.S. jobs growth will bolster demand for emerging-market assets. Government bonds were steady.

The unemployment rate in the world’s largest economy fell to a four-year low and payrolls expanded more than economists forecast, reports showed on May 3. Global funds boosted holdings of Indian shares by a net $300 million on May 2, the most in a month, exchange data show. The rupee’s gains will be limited after central bank Governor Duvvuri Subbarao said there was very little chance monetary policy would be eased further.

The rupee advanced 0.1 percent to 53.87 per dollar as of 9:49 a.m. in Mumbai, according to data compiled by Bloomberg. This compares with gains of 0.4 percent for the Thai baht and the Taiwan dollar. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose one basis point, or 0.01 percentage point, to 8.43 percent.

“Good U.S. data is favorable for flows into Asia,” said Dariusz Kowalczyk, a strategist at Credit Agricole CIB in Hong Kong. “The rupee’s gain is lower relative to other Asian currencies today, showing that the Reserve Bank of India’s guidance is weighing on the currency.”

The RBI lowered its repurchase rate to 7.25 percent from 7.50 percent on May 3, the third cut this year, to boost an economy growing at the slowest pace in a decade. “The baseline case is that the possibility of easing is practically non- existent,” Subbarao said in a Bloomberg TV India interview in Mumbai on May 4. Any expectation that the outlook is for “another salvo” of loosening is “inaccurate,” he said, adding inflation and the current-account deficit will determine the path of monetary policy.

Debt Buying

The central bank will buy as much as 100 billion rupees ($1.9 billion) of debt due in 2017, 2024, 2025 and 2032 tomorrow, the monetary authority said in an e-mailed statement after the market closed on May 3. The RBI may have to boost the frequency of debt purchases to manage cash in the banking system until economic conditions allow more easing, Kowalczyk said.

The yield on the 8.15 percent bonds due June 2022 was little changed from May 3 at 7.75 percent in Mumbai, according to the central bank’s trading system.

Three-month onshore rupee forwards traded at 54.85 per dollar, compared with 54.92 on May 3, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 54.55 versus 54.42. 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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