India’s Rupee Rises as Foreign Investors Add to Bond Holdings

India’s rupee rose for the first time in three days after foreign investors added to holdings of the nation’s bonds.

Global funds bought a net $2.8 billion of the notes in January as inflation eased, after selling $8 billion in 2013, exchange data show. The rupee was also boosted today by speculation that a large exporting company was selling dollars, according to Development Credit Bank Ltd.

“We did see some inflows today,” said Naveen Raghuvanshi, a trader at Development Credit Bank Ltd. in Mumbai. “The rupee is likely to stay rangebound.”

The Indian currency rose 0.2 percent to 61.4975 per dollar as of 10:25 a.m. in Mumbai, according to prices from local banks compiled by Bloomberg. The rupee has advanced 0.5 percent this year. Technical charts indicate the currency may find it tough to strengthen past 61.4, according to FirstRand Ltd. and Development Credit Bank.

The Reserve Bank of India predicts the shortfall in India’s current account will narrow to around $56 billion in the year through March 2014 from an unprecedented $88 billion in the previous 12 months.

India’s 10-year government bond yields 8.51 percent, compared with 2.84 percent on similar-maturity U.S. Treasuries. The RBI will leave its benchmark repurchase rate at 7.75 percent at a Jan. 28 review, according to all 14 economists surveyed by Bloomberg.

Rebound Disappointing

The rupee’s gain this year is small, considering the improvement in the current account, according to HSBC Holdings Plc.

“Given their high yielding status, the rupee and Indonesia’s rupiah should have been leading the pack in terms of a stronger recovery,” HSBC analysts including Paul Mackel in Hong Kong, wrote in a research report today. “The lack of a positive follow-through so far this quarter is a concern.”

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose nine basis points, or 0.09 percentage point, to 8.61 percent.

Three-month offshore non-deliverable forwards rose 0.2 percent to 62.59 per dollar, data compiled by Bloomberg show. 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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