India’s Rupee Strengthens as Yellen Spurs Inflow Optimism

India’s rupee rose the most in more than a month on optimism global funds will boost purchases of local stocks as the U.S. maintains its record monetary stimulus.

Janet Yellen, the main contender to replace Ben S. Bernanke as Federal Reserve chief when his term expires, signaled on Nov. 14 that she will press on with bond purchases until the world’s largest economy improves. That helped boost confidence in the rupee, according to BNP Paribas SA. The currency gained for a third day after Reserve Bank of India Governor Raghuram Rajan said Nov. 15 that he will seek a balance between policies aimed at reviving growth and curbing inflation.

“The Yellen speech has helped sentiment,” said Vikas Babu, a trader at Andhra Bank in Mumbai. “Bunched-up inflows due to the Nov. 15 holiday in India” countered dollar demand from importers, he said.

The rupee advanced 1.1 percent from Nov. 14 to 62.4150 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. That’s the biggest gain since Oct. 3. It touched 62.3750 earlier, the strongest level since Nov. 7. Indian financial markets were shut Nov. 15 for a local holiday.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 88 basis points, or 0.88 percentage point, from Nov. 14 to 11.74 percent. Overseas funds bought a net $354.4 million of Indian shares this month through Nov. 12, exchange data show.

Skandinaviska Enskilda Banken AB recommends investors buy the rupee, saying economic indicators point to a delay in Fed tapering and Rajan will probably add to the two interest-rate increases since he took charge of the RBI on Sept. 4, Sean Yokota, Singapore-based head of Asia strategy at the Swedish lender, wrote in a note to clients.

‘Balancing Act’

“We need to reduce demand somewhat without having serious adverse effects on investment and supply,” Rajan said in a speech in Mumbai on Nov. 15. “This is a balancing act, which requires the Reserve Bank to act firmly so that the economy is disinflating, even while allowing the weak economy more time than one would normally allow for it to reach a comfortable level of inflation.”

The governor boosted the benchmark repurchase rate by 25 basis points each in September and October to 7.75 percent to counter price pressure. The wholesale-price index rose 7 percent last month from a year earlier, the fastest pace since February, the latest official data show. In October, the RBI cut its forecast for India’s economic growth in the year through March 2014 to 5 percent from an earlier prediction of 5.5 percent.

Three-month onshore rupee forwards rose 1.3 percent from Nov. 14 to 63.90 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts advanced 0.5 percent from Nov. 15 to 64.22. 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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