India Rupee Rises to Two-Month High on Inflows, Deficit Optimism

India’s rupee rose to the highest level in almost two months on speculation policy makers will succeed in efforts to boost capital inflows and rein in the current-account deficit.

Policy makers are in talks with JPMorgan Chase & Co. about getting Indian debt into international indexes, Finance Minister Palaniappan Chidambaram said in Washington yesterday. A concessional currency-swap window offered to local lenders last month attracted $5.6 billion so far, Reserve Bank of India Governor Raghuram Rajan said Oct. 4. The trade deficit narrowed in September to the lowest level since March 2011, official data showed Oct. 9.

“The rupee’s progress is gathering momentum for now,” Paul Mackel, head of Asian currency research at HSBC Holdings Plc in Hong Kong, wrote in a research report today. The prospects are “high” that the government may achieve or exceed its goal of narrowing the current-account deficit to $70 billion in the year through March 2014, he wrote.

The rupee gained 0.4 percent this week and 0.3 percent today to 61.1750 per dollar as of 10:11 a.m. in Mumbai, according to prices from local banks compiled by Bloomberg. It touched 61.0700 earlier, the strongest since Aug. 13. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose six basis points, or 0.06 percentage point, since Oct. 4 to 15 percent.

India’s current-account deficit in the year through March 2014 may be about 14 percent lower than the Finance Ministry has targeted, easing pressure on the rupee, Chakravarthy Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said in an Oct. 9 interview.

International Finance Corp., the World Bank’s investment unit, plans to sell a record $1 billion of rupee bonds offshore to fund investments in India, it said Oct. 9.

One-month onshore rupee forwards fell 0.2 percent today to 61.71 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts advanced 0.7 percent to 61.68. 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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