Rupee Heads for Best Month in a Year on Capital Inflow Optimism

India’s rupee headed for its best month in a year after the central bank took steps to boost dollar supply and the U.S. maintained stimulus that’s buoyed emerging markets.

The Indian currency has rebounded 9.8 percent from a record low of 68.845 per dollar touched Aug. 28 after the Federal Reserve said Sept. 18 it will continue $85 billion a month of bond purchases. Reserve Bank of India Governor Raghuram Rajan allowed local banks this month to borrow more from abroad and offered to swap the funds, along with foreign-currency deposits raised from citizens living abroad, at concessional rates.

“We don’t think the Fed will taper until March of next year, so that opens up a window for the market where liquidity is ample,” said Mirza Baig, head of currency and interest-rate strategy in Singapore at BNP Paribas SA. The bank recommends buying the rupee, saying “sentiment has turned” in its favor since Rajan took charge of the RBI on Sept. 4.

The rupee advanced 4.8 percent this month to 62.7075 per dollar as of 10:15 a.m. in Mumbai, according to prices from local banks compiled by Bloomberg. That’s the best performance among 11 most-traded Asian currencies, and pares a quarterly loss to 5.3 percent. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 557 basis points, or 5.57 percentage points, in September to 15.16 percent. That’s the biggest drop since January 2009.

U.S. Budget

The rupee fell 0.4 percent today amid a U.S. budget stalemate that raises the risk of the first government shutdown in 17 years. Italy’s government is on the verge of collapse after allies of former leader Silvio Berlusconi said they’d quit the cabinet.

India’s current-account deficit probably widened to $23 billion in the three months through June from $18.08 billion the previous quarter, a Bloomberg survey showed before official data due after market hours today.

One-month onshore rupee forwards fell 0.5 percent from Sept. 27 to 63.33 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts rose 0.1 percent to 63.58. 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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