India Rupee Snaps 3-Day Loss on Inflows After Inflation Slows

India’s rupee snapped a three-day decline after foreign investors pumped money into the nation’s assets as inflation eased to a 41-month low.

Global funds bought a net $883 million of Indian shares last week and foreign holdings of local debt rose to a record $38 billion on May 17, exchange data show. An auction of 55.33 billion rupees ($1 billion) of sovereign debt-purchase permits was oversubscribed yesterday, according to two people with knowledge of the matter who asked not to be identified as they aren’t authorized to speak to the media. The central bank lowered the benchmark repurchase rate to 7.25 percent on May 3, the third cut this year.

The rupee advanced 0.2 percent to 55.03 per dollar as of 10:02 a.m. in Mumbai, according to data compiled by Bloomberg. It touched 55.1350 yesterday, the weakest level since March 4. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell five basis points, or 0.05 percentage point, to 8.43 percent.

“Further Reserve Bank of India easing and lower inflation will likely boost portfolio flows and the rupee,” analysts at Barclays Plc, including Mumbai-based Siddhartha Sanyal, wrote in a research report today. “But over the medium term, a still-wide current-account gap and likely dollar strength in the second half of 2013 could temper rupee strength.”

Bernanke Testimony

The shortfall in India’s current account, the broadest measure of trade, widened to a record of around 5 percent of gross domestic product in the year through March 2013, the government estimates. Wholesale prices climbed 4.89 percent in April, the slowest pace since 2009, official data showed May 14.

Federal Reserve Chairman Ben S. Bernanke testifies tomorrow on the U.S. economic outlook before a Joint Economic Committee of Congress, less than a month before the policy-setting Federal Open Market Committee meets. The FOMC said May 1 that it will keep buying $85 billion in bonds per month to bolster growth, and that it would increase or decrease the pace of purchases in response to the labor market and inflation.

Three-month onshore rupee forwards traded at 55.95 per dollar, compared with 56.04 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.82 versus 55.88. 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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