India’s Rupee Heads for Fourth Weekly Gain on Inflow Optimism

India’s rupee headed for a fourth weekly gain on optimism the central bank’s efforts to boost the supply of dollars will ease concerns about financing the nation’s current-account deficit.

Reserve Bank of India Governor Raghuram Rajan this month allowed banks to borrow more from abroad and offered to swap the funds, along with dollars raised through deposits from citizens living overseas, at concessional rates. The shortfall in the broadest measure of trade will narrow to 3.2 percent of gross domestic product in the year through March 2014 from a record 4.8 percent in the prior period, according to Religare Capital Markets Ltd.

The rupee gained 0.6 percent this week and 0.2 percent today to 61.93 per dollar as of 10:05 a.m. in Mumbai, according to prices from local banks compiled by Bloomberg. The currency’s 6.1 percent advance in September is the best performance among Asia’s 11 most-traded currencies. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 247 basis points, or 2.47 percentage points, since Sept. 20 to 14.97 percent.

“Concerns over current-account-deficit funding have largely faded after the RBI’s recent measures,” Tirthankar Patnaik, a strategist at Religare Capital in Mumbai, wrote in a research report today. “A sooner-than-expected Fed taper, leading to sharp rupee depreciation, and rising commodity prices remain key downside risks.”

‘Least Bad’

Global funds bought a net $2 billion of Indian stocks this month, exchange data show, partly spurred by the U.S. Federal Reserve’s decision on Sept. 18 to not pare its monthly bond purchases. The inflows helped the rupee rebound 11.2 percent from an all-time low of 68.8450 touched Aug. 28.

“Forget tapering. To make money in these markets, you have to dabble a bit in the risky stuff,” analysts at BNP Paribas SA, including Singapore-based Mirza Baig, wrote in a research report today. “The rupee looks the least bad among the problem-child currencies; sell the dollar against the rupee.”

India’s current-account gap widened to $23 billion in the three months through June from $18.08 billion the previous period, according to the median of 23 estimates in a Bloomberg survey of economists before data due next week. This jump was caused by a drop in exports and a surge in gold imports, according to Religare, which predicts inward shipments of the metal will now fall after curbs imposed by policy makers, and exports will improve as the U.S. economy recovers.

One-month onshore rupee forwards rose 0.1 percent today to 62.50 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts gained 0.3 percent to 62.61. 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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