Indian Rupee Poised for Best Week This Year on Inflow Optimism

India’s rupee headed for its biggest weekly gain since November on optimism steps announced by the new central bank chief will boost the supply of dollars.

In his first speech since taking charge as Reserve Bank of India Governor on Sept. 4, Raghuram Rajan offered to sell concessional swaps for lenders’ foreign-currency deposits and vowed to rein in inflation. The measures will boost the nation’s reserves by $10 billion, Bank of America Merrill Lynch estimates. The rupee fell today on concern slowing growth will deter investment when the U.S. pares stimulus.

The Indian currency rose 2 percent this week to 63.96 per dollar as of 10:07 a.m. in Mumbai, the biggest gain since the five days through Nov. 30, 2012, according to prices from local banks compiled by Bloomberg. The currency weakened 0.7 percent today, the sharpest drop since Sept. 3.

The recent RBI policies “are near-term positives for the rupee,” Barclays Plc analysts, including London-based Christian Keller, wrote in a report yesterday. “However, it remains to be seen whether these measures will translate into better sentiment and a pick-up in portfolio inflows in the context of Fed tapering later this month.”

Overseas funds have cut holdings of Indian debt by $10.5 billion since May 22, when Federal Reserve Chairman Ben S. Bernanke first flagged a potential cut in asset purchases that had fueled demand for emerging-market assets. U.S. policy makers meet Sept. 17-18 and the RBI reviews policy on Sept. 20.

Industrial Production

The largest developing nations for the first time have the worst market opportunities as optimism for stronger growth shifts to the U.S. and Europe, according to a Bloomberg Global Poll. India fared the poorest, followed by Brazil, Russia and China. A reduction in Fed stimulus will be seen as no big deal if it goes ahead next week, according to another Bloomberg Global Poll of investors.

Indian industrial production unexpectedly rose in July, according to official data published after the market shut yesterday, while a separate report showed consumer prices increased 9.52 percent in August from a year earlier.

“We don’t see the rise in industrial production as sustainable as it is driven by volatile categories, which will likely reverse,” said Sonal Varma, an economist at Nomura Holdings Inc. in Mumbai. “The growth outlook is very weak.”

One-month implied volatility in the rupee, a measure of expected moves in the exchange rate used to price options, rose 21 basis points today, or 0.21 percentage point, to 17.78 percent.

Three-month onshore rupee forwards fell 0.5 percent to 65.64 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts declined 0.2 percent to 65.96. 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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