India’s Rupee Poised for Weekly Advance After RBI Rate Increase

India’s rupee headed for a weekly advance after the nation’s central bank unexpectedly raised interest rates to curb inflation.

The Reserve Bank of India increased the repurchase rate to 8 percent from 7.75 percent on Jan. 28, a move predicted by only three of 45 economists in a Bloomberg survey. Policy makers from Turkey to South Africa also boosted borrowing costs to slow the slide in their currencies as the U.S. Federal Reserve trimmed stimulus for a second straight meeting.

“There was optimism for the rupee as the RBI surprisingly raised the repo rate this week,” said Amogh Moghe, a foreign exchange trader in Mumbai at brokerage Mecklai & Mecklai Ltd. “Dollar sales by some state-owned banks are also supporting the currency.”

The rupee rose 0.4 percent this week and 0.2 percent today to 62.4445 per dollar as of 10.44 a.m. in Mumbai, according to prices from local banks compiled by Bloomberg. The currency is likely to trade between 62.30 and 62.55 today, Moghe predicted.

The U.S. central bank said this week it will cut monthly bond purchases by $10 billion to $65 billion from February, after a similar reduction in January.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, declined 12 basis points, or 0.12 percentage point, today to 10.38 percent.

Three-month offshore non-deliverable forwards in the rupee advanced 0.4 percent today to 63.85 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: Divya Patil in Mumbai at dpatil7@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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