India’s rupee rose, extending its rebound from a record low, after the government said it is considering options to spur inflows and Fitch Ratings revised the nation’s credit-rating outlook to stable from negative.
Policy makers are weighing steps including a debt offering to Indians living abroad to attract investment and offset a record current-account deficit, Raghuram Rajan, the top adviser at the finance ministry, told reporters in New Delhi yesterday. Fitch’s move “reflects the measures taken by the government to contain the budget deficit” and “some, albeit limited, progress in addressing some of the structural impediments to investment and economic growth,” the company said.
“Amid high global volatility, the rupee has been under relentless selling pressure,” Barclays Plc strategists including Singapore-based Igor Arsenin wrote in a report today. “Policy makers are now turning towards a mix of verbal and market intervention.”
The rupee appreciated 1.1 percent to 57.7900 per dollar in Mumbai, the biggest gain since Jan. 18, according to data compiled by Bloomberg. It touched an all-time low of 58.9850 yesterday. The dollar-rupee’s 14-day relative strength index was 73, the lowest since May 27, indicating that the rupee is recovering after falling too much, too fast.
One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 24 basis points, or 0.24 percentage point, to 11.38 percent.
“We will be exploring all ways to enhance the safe financing of the current-account deficit,” Rajan told reporters when asked if the government was considering a sovereign bond sale or an offering to overseas Indians. “Is any one of these measures going to come to the fore? That we will have to see over the next few days.”
Other possible steps to support the rupee are dollar sales by the central bank and allowing more foreign investment in the nation’s debt market and industries, according to Barclays. Policy makers have reduced levies on rupee-debt purchases and made it more expensive to import gold, which the central bank estimates contributes 80 percent to the current account deficit.
The shortfall in the broadest measure of trade widened to a record of about 5 percent of gross domestic product in the year ended March 31, the government estimates. Finance Minister Palaniappan Chidambaram aims to narrow the budget gap to 4.8 percent of GDP in the year through March 2014 from 4.9 percent in the previous period.
Three-month onshore rupee forwards rose 1.2 percent today to 58.71 per dollar, according to data compiled by Bloomberg. Offshore non-deliverable contracts gained 1.2 percent to 58.83. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
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